How can the bank hold an insurance check that was for damages to my house?

This might be a change in the bank's policy for relatively minor repairs and claims, but I would bet dollars to doughnuts that the loan documents you signed give the lender the right to the proceeds and that in order to make the loan they insisted that they be listed as loss payee. That's why the check came payable to both of you. Now they want to be sure that the repairs were made properly in order to protect their collateral. While I doubt you're being singled out, your default and the previous imminent foreclosure can't be giving them a warm and fuzzy feeling. SO, let's figure out a way to get them comfortable with the fact that you completed the repairs and that the house and safe and sound and its value in tact. I'll ignore the question about what the insurance company thinks about the amount of the claim. My first approach would be to do up the chain of command, ending with a call or letter to the President or CEO. That might be all it takes based upon the size of this repair and claim.  You could also contact the bank's regulator, but this is a service issue, I suspect, and not a legal one. If that doesn't work, then I suggest that you suggest to the bank that they send an inspector to check out the repair. They almost certainly will want to deduct the amount from any insurance proceeds you are set to receive or add it to your loan amount, but if you really saved a bundle on doing the repair yourself, this shouldn't be too big a hit. That is the price you pay for having a mortgage.  The other option is to pay them off and be done with them. While an attractive option, I realize it's not one which is likely to be feasible. Don't take this personally.  Most banks and loan servicers are so overworked that they don't have the energy or inclination to single someone out for this type of matter. Be polite and persistent, and this just might end how you look sooner than you think. Best of luck in working this out.