Back in November 2016 there was a natural disaster in the area which caused many buildings to burn or sustain fire/smoke damage. In reviewing holds on deposits for a Reg CC audit I came across a hold on an insurance check deposited in July 2017 payable to the customer and our bank with a date available of 5.25.21.

The reason for the hold, according the LO, is that the funds were placed into a new account (titled in the customers name, DBA, and titled Escrow for Insurance Proceeds) with the purpose of releasing funds as the repair work was completed on the collateral securing a loan at our bank. This was done to ensure that the repairs are in fact made on the collateral, especially since the customer is doing some of the repairs themselves. When all the repairs are completed, any excess insurance funds will be released to the customer.

I am stumped. Would this be outside the realm of Reg CC? Is there any issue with how this has been handled?

The money was put into an escrow account that is managed by the bank - it is not a consumer account. Your consumer should not even be an authorized signer on the account or if they are, it would require both them and the bank to sign the checks. Whether you have this sort of account set up correctly is another question - but this is not a Reg. CC hold.

Thanks very much for the help!

I agree with Randy. Fannie Mae provides guidance on how to process insurance claims in their Servicing Guide (https://www.fanniemae.com/content/guide/svc071217.pdf). Look in Chapter B-5.