How escrows can protect you
If your insurance money went straight to your mortgage company instead of you, it can feel frustrating - like someone else is holding your recovery hostage. But that escrow account isn’t the enemy. It’s actually one of the best protections you have against being overcharged, rushed, or left halfway rebuilt.
Here’s why…
This guide was built in partnership with the AIA.
It was fact-checked by licensed professionals and building experts.
Consult a builder or architect for specifics to your situation.
It keeps everyone honest
Your mortgage company wants your home rebuilt, because they are a financial investor in it. That’s why insurance checks for rebuilding aren’t made out to just you; they also include your mortgage company.
When your contractor asks to get paid, the mortgage company doesn’t just release the money automatically. They require proof that the work was actually done - things like photos, inspections, or invoices - before they approve payment.
This protects you. It means you’re only paying for real, completed work. A contractor who only gets paid after each phase is finished has a much stronger reason to stay on the job and see the project through.
It slows things down just enough to catch mistakes
The escrow system adds a natural pause between “work completed” and “payment released.”
That pause gives you time to review progress, ask questions, and make sure things were built right before another check goes out.
PRO TIP:
Ideally, your mortgage company, insurance company, and builder have agreed to a milestones disbursement plan (similar to this bill Colorado passed after the Marshall Fire).
It slows things down just enough to catch mistakes
The escrow system adds a natural pause between “work completed” and “payment released.”
That pause gives you time to review progress, ask questions, and make sure things were built right before another check goes out.
PRO TIP:
Ideally, your mortgage company, insurance company, and builder have agreed to a milestones disbursement plan (similar to this bill Colorado passed after the Marshall Fire).
It protects you from overpaying
Contractors sometimes underestimate a phase and ask for extra draws.
With escrow, the lender compares the payment request to the contract, estimate, and inspection notes, and only releases what’s appropriate. It’s an extra layer of accountability you don’t have to pay for.
it helps your rebuild stay organized
Escrow accounts require all the right documents - contracts, permits, proof of insurance, lien waivers, and inspection reports. That can feel tedious, but it means you end up with a paper trail that’s airtight. If there’s ever a dispute or a question from insurance or FEMA later, you have every record already organized.
It protects your credit and your property
Because the mortgage company still technically owns part of your property, they have a legal interest in protecting it. That means they won’t release final funds until your home passes inspection and is safe to occupy - helping ensure you don’t get stuck with an unfinished or unsafe structure that still carries a loan.
this is normal
This isn’t personal. Every major lender and insurance company uses this process for large rebuilds. It’s designed to make sure your money goes exactly where it should: into a finished, insurable home you can safely return to.
Your GC should not have a problem with this either, and ideally has gone through this process before - which is why it’s ideal to work with a team that has experience with rebuilds. You shouldn’t get any complaints about delays or the time it takes for processing from your team.
PRO TIP
Treat your lender’s escrow officer as part of your rebuild team. Keep them in the loop when you sign your contractor agreement, update your timeline, or schedule inspections. The smoother their file looks, the faster your draws get released.