Mortgagee Clause… What’s the scoop?

For many of you, your home may be your most valuable asset. And as most of you already know, it’s important to protect that asset by maintaining adequate insurance coverage in the event of a loss. Furthermore, it’s extremely critical to review your policy if you have made any upgrades or improvements to your home within the last year.

One topic in particular that often comes up is making sure the mortgagee clause is correct. This clause is often located on the last page of your policy, and it shows your mortgage company’s name and address. Simply put, the mortgagee clause is exactly how the lender wants their name and address to appear on legal documents. But lenders are very picky and require that everything is perfect :)  

Furthermore and –we want to stress this— when you refinance your home with a different mortgagee  or your mortgagee transfers the servicing to another carrier it’s important that you let us know. The mortgage companies almost never tell us when there is a change, which is not good for you for the following reasons:

  1. Until the new mortgagee gets a copy of the policy, the new mortgagee will think that there is no insurance on the home that they are financially invested in. When this happens they usually send out a warning notice that they have not received proof of insurance. If they don’t receive that proof—the letter gets lost in the mail or worse it never gets opened – the mortgagee at that point can force “Excess Hazard Insurance”  on you. Start emptying your pockets, because this type of insurance costs a fortune… usually 3-5 times as much!
  2. A second problem is that claim checks will be issued incorrectly. When you file a claim for your house and have the mortgagee listed incorrectly, the check is made out to both of you. The insurance company can always re-cut the check but it takes time.. at lease  a couple of weeks for them to cancel the first check and reissue a second. Frankly, this takes more time and energy than you should have to spend time on, and you can’t finish the claim until you have the money to pay for the damage.
  3. Last but not least, many times insureds obtain a loan with a mortgagee that require the policy to be escrowed. This means you pay your monthly mortgage but they lump your insurance premium in addition to taxes and fees into your  monthly bill . It’s nice for you, because you get to spread out your insurance premium into 12 installments, but if you refinance or change your mortgagee, policies set up to direct bill will be billed to the wrong mortgage company. You are still paying your monthly mortgage with your new mortgagee, but the insurance is no longer being paid because your old mortgage company is still receiving the bill. Because they no longer have an invested interest in the property, this most always leads to the policy going into cancellation. Should it be cancelled for nonpay it could affect your credit rating.

To wrap this up, the purpose of a mortgagee clause is to protect a policy holder by protecting them in the event of a loss. This clause is included on the insurance policies for the protection of the mortgagee or financial institution invested in the loan.  So please, take a look at your policy and make sure everything is in tip-top shape. We want you to be covered and we do our best to make sure of that. As always, give us a call or feel free to comment should you have any questions.

May 3rd, 2013 by Quincy Insurance Agency LLC