January 4, 2016

Mortgage Company & Homeowners Insurance

Why does my mortgage company get listed on my homeowners insurance policy?  

How does it get removed?  

What rights does the lender have?

Mortgage Company and Homeowners Insurance

Homeowners Insurance contains a special mortgage provision.    This provision or clause allows your mortgage company special rights.     Your lender will require you to have this clause if they loan you money for the purchase of a new home.   The provision will be on your home insurance until the loan is paid off.  It can be removed once the loan is paid off and once all the necessary paperwork is completed.

Your Mortgage Company has Special Rights:

1. The lender will have a right to be notified if your home insurance is cancelled for any reason.  If your homeowners insurance is cancelled then you will want to quickly set up new insurance before lender forced insurance is put into place.
2. If there is a loss to the property, than the “loss to mortgaged property is payable to the mortgagee named in the policy” per the definition at IRMI.
3. Lastly the provision also “grants continuing coverage for the benefit of the mortgagee in the event that the policy is voided by some act of the insured (e.g., arson).”

These are the main three provisions.  In general they make sense.  The bank really owns the home.

What you will notice on your Insurance documentation:

You are most likely to notice the name of your loan company listed on your insurance documents.  From time to time the name of your bank may change, as your bank sees fit.   It may change because you refinance your loan or because your loan has been sold to another institution.   A few common acronyms that you are likely to see are:

ISAOA – Its successors and or assigns.   “This simply means the rights of the mortgagee can be transferred to any entity that purchases your bank” per an article on The Truth About Insurance:  What is a Mortgage Clause.

ATIMA -As their interests may appear. “This basically means the same as ISAOA.” per the exact same post.

From time to time you may notice documentation requesting changes in the name between the bank and the insurance company.  This is rather typical.

Flood Insurance Too:

Up to this point this article has been discussing homeowners insurance.  Home Insurance covers you from the peril of fire and many others.  However, there are many perils that are NOT covered by homeowners such as Flood, Earthquake, and others.   Flood Insurance may ALSO be required by your lender depending on your flood zone.  The Mortgage Clause would also pertain to these situations as well.

Of Special Note when Purchasing a New Home:

When you are purchasing a new home, the exact wording and spelling (obviously) matter greatly to the lender.   Your insurance agent will want to know exactly how to have the banks name listed.   This is far more complicated than just the name.  It may contain some of the abbreviations and acronyms above.   In addition, they will include a loan number and an address.  The bank will usually want to be listed in a very legalistic way.  An example might be rather than ABC Bank it may be ABC Bank Corporation NA. Otherwise your loan and closing may get held up.    There are other special considerations when purchasing a new home and new insurance together.

Get an Insurance Quote for your New Home Today from an Experienced Agent

Scott W Johnson – California License 0H11625

Marindependent Insurance Services LLC – California License 0K10734

Independent Insurance in and around Marin County California.  Thank you for reading mortgage company homeowners insurance. Please see a licensed agent in every case when considering making or changing any insurance.  Please read our disclosure.