Is Your Lender entitled to your Insurance Money?
With great sadness we watch on TV the many homes that have been lost in the recent fires. What happens with your insurance money? .
Under nearly every deed of trust or loan agreement is a provision that requires the borrower to maintain hazard/fire insurance and name the lender as an additional insured. The purpose of the clause is to give the lender an interest in the insurance proceeds in the event of a covered claim
What this means is that generally the borrower is entitled to the use of the insurance proceeds to rebuild a property that has been destroyed by a fire unless the lender can show, through admissible evidence, that the security will be impaired.
The use of insurance proceeds by a borrower is tremendously important. The insurance is designed to provide the relief needed to put the property back together, to make it useful or habitable again. If lenders were allowed to unilaterally intercept those funds it would render insurance meaningless to a borrower and would severely undermine the rebuilding of local economies impacted by fire and other hazards.
Make sure you contact your insurance agent to confirm your insurance is up-to-date and coverage of your belongings are sufficient. It may seem expensive now, but you will be greatly relieved if the worst was to happen. I’m sure those who have lost their homes never thought it could happen to them. Don’t wait or procrastinate, make the call to your insurance agent today.