What Is A Mortgagee Clause?

A mortgagee clause is an agreement between a mortgagee (the lender) and the home insurance provider. It safeguards the lender from financial losses in case of property damage.

This clause works as a provision in a borrower’s property insurance policy. In case of property damage, the insurance company will pay a stipulated amount to the lender.

Mortgagee Clause Example

If you obtain a mortgage to buy a home or property and that property burns down, the mortgagee clause will guarantee that the loss will be payable to your lender.

In case the borrower commits arson the insurance provider will still pay the lender even if the original policy is void

How Does A Mortgagee Clause Work?

Step 1: The borrower needs to purchase property insurance to protect against damage or loss to the property.

Step 2: The borrower needs to name the lender as an additional insured or loss payee on the property insurance policy. This will allow the insurance company to make payments to the borrower as well as the lender.

Step 3: If there is any damage to the property the lender too is notified of the insurance claim. This will alert the lender to any property damage so they can take action to safeguard their interests.

Step 4: The lender receives the insurance proceeds.

How Do You Get A Mortgagee Clause?

Here are the steps to get a mortgagee clause

Step 1: Contact your lender to request detailed mortgagee clause information. Generally, they will provide you with the information you require or guide you to the right division.

Step 2: Speak to the insurance provider to request that they include the mortgagee clause in the policy.

Step 3: Do to verify that the mortgagee clause information provided is accurate and up-to-date. This will allow the lender to know if they are protected in the event of damage or loss to the property.

Step 4: Lastly, you need to update the mortgagee clause information if you switch insurance providers or if there is any change in the lender information.

What are the components of the Mortgagee Clause?

A mortgagee clause includes several components.

• Name of the lender: Lender’s name is the first and the main component of the mortgagee clause.
• Additional insured or loss payee: The mortgagee clause designates the lender as an additional insured or loss payee on the property insurance policy. Further, the insurance company will make payments to both the borrower and the lender in the event of damage or loss to the property.
• Policy number: The mortgagee clause includes the policy number of the property insurance policy.
• Address of the property: This clause notifies the exact location of the property.
• Description of the coverage: The mortgagee clause mentioned the type of coverage as per the insurance policy. Such as dwelling coverage, personal property coverage, or liability coverage.
• Mortgagee’s rights: This clause notifies the lender’s rights in the event of any damage or loss to the property.

Common terms used in the Mortgagee Clause

In the mortgage clause, you will come across several terms used frequently. The two most important terms are as mentioned below:

ISAOA

ISAOA stands for “Interest of the Servicer/Mortgagee As Additional Insured”. It is the most common term used in the mortgagee clause. This means to protect the interests of the lender.

This clause identifies the lender as an additional insured or loss payee on the home insurance policy. This means the insurance claim amount is paid directly to the borrower as well as the lender in the event of any damage to the property. It ensures that the outstanding mortgage debt is satisfied.

ATIMA

ATIMA stands for “as their interests may appear”. It is often included in a mortgagee clause in any insurance policy. It means that the insurance policy covers the interests of the mortgagee or lender to the extent of their financial interest in the property.

The exact wording of the mortgagee clause may vary depending on the insurance company and the terms of the mortgage agreement. It is a common practice to protect the interests of the borrower or the lender.

The Bottom Line

The mortgagee clause lets the lender get the financial benefit in the event of any damage or loss to the property. This clause mentioned the lender as an additional insured or loss payee. It gives lenders the right to receive insurance and protect their financial interests in the property.

Frequently Asked Questions

Uncategorized