This situation is complicated, another Free-To-Read NZ Herald article https://www.nzherald.co.nz/hawkes-bay-today/news/cyclone-gabrielle-insurance-pays-out-flood-affected-family-but-their-bank-wont-release-the-funds/SLXXPI54KFGO5LSQZWRL36CIZQ/, but it is important to understand the principles.
This is about a couple who were hit hard by the Cyclone and claimed on their insurance to rebuild a variety of dwellings and sheds on their own property, as well as purchasing a neighbouring property to renovate and eventually live in.
The insurer paid out the money in full, but their bank – ASB – won’t release the money to the couple. This is the statement from the bank:
“As is required under the Property Law Act 2007, where a bank has a registered interest in a damaged property, funds from an insurance payout are paid to the bank in the first instance.
“In February 2023, in response to the significant damage caused by Cyclone Gabrielle, New Zealand’s five largest banks established a new way of working with insurance companies.
“Under the agreed process, up to $100,000 is immediately available to the customer, and the remaining sum is put on hold until the bank receives satisfactory evidence that the funds will be used for remediation work on the damaged property.
“When the bank’s lending is secured against a property, the bank needs to ensure that any claim paid out on the property is used for repairs, to restore the property’s value.
“Alternatively, the customer has the option to pay back their loan to the bank in full. After that, the bank would release any remaining funds.”
Obviously there is more information to the story, as the bank wasn’t releasing the funds as at the date of the article, and the rebuild was proceeding slowly, but it is important to be aware that if you owe money on an asset, the bank has the right to retain the funds and make their own decision about what the funds should be used for.
