Certificates Of Insurance For Mortgagee
If you own real property with a loan, you are the mortgagor. This is a legal term that means you have given your lender a security interest in your property called a Mortgage. The lender is the Mortgagee. It may be a bank, credit union or any other entity that lends you money to purchase or refinance real property. To protect their interests all Mortgagees require the Mortgagor obtain an insurance policy. Keep reading for a very important money saving tip below.
These policies generally have two parts:
- Property Coverage: This basic property insurance usually covers losses caused by fire, lightning, wind and hail, or acts of vandalism. Additional coverage maybe required by the Mortgagee for loss due to earthquakes or flooding.
- Liability Coverage: Even though this insurance is not related to the value of the physical structure. Mortgagees generally will require that the policy provides liability coverage in case someone other than the property owner or renter is injured while on the property and decides to sue.
What is a Mortgagee Clause?
The mortgagee clause or Certificate of Insurance for a Mortgagee is a form that names the entity that has financial interest in any piece of property. Typically, the mortgagee clause contains the name and address of the lender as well as the loan number. This all makes perfect sense. The things that have most people scratching their heads are the following letters or words contained in the mortgagee clause. These are the most common head scratchers.
ISAOA: This stands for “Its successors and or assigns.” This means the rights of the mortgagee can be transferred to any entity that your lender may transfer your mortgage to. On a side note very few lenders that “Originate Loans” collect the the monthly payments they typically sell or assign them to processing companies. These companies now owns your mortgage and the Mortgagee Clause will have to be revised to show the new company. They will still have coverage even if not listed on Certificate of Insurance for Mortgagees.
ATIMA: This stands for “As their interests may appear.” This basically means the same as ISAOA. Ultimately, it is legalese that guarantees the rights of compensation to the entity that lends money for
How Does a Certificate of Insurance for Mortgagees Work
A Certificate of Insurance for Mortgagees is important because it states who has legal right to financial reimbursement in the event the property in question suffers a loss.
If you take out a loan to buy a piece of real estate, you must purchase insurance to protect the Mortgagee or lenders financial interest in the property. This is often referred to as a loss payee. If the property was to suffer a loss from any of the covered perils the insurance company would make sure to pay any money due to satisfy the lender’s/Mortgagee’s financial interest, or more simply put they will payoff the amount that is owed on the Mortgage. Any amount left over will be paid to you.
You may be asked to provide the mortgagee clause when you switch insurance companies or when you first purchase the property. There is always the requirement to purchase hazard insurance in order to satisfy lender requirements. The only way to do this is by providing a Certificate of Insurance for Mortgagees.
When you are asked for this information by your insurance company it is simply them making sure they have an exact record of who has financial interest in the property. That way, if there is a loss, they can make sure the right people get the money owed to them.
Do not ignore letters from your lender asking you to provide proof of insurance coverage. If you fail to provide them with proof they will obtain insurance on your behalf. This is commonly called FORCED PLACED insurance. The rates are usually 3 or 4 times the price of what you can obtain. These premiums will be billed to you or rolled into the amount you owe.
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