Some people call it the lender's loss payable clause, other people call it the loss payee clause; and it is also known as the mortgagee clause.
The mortgagee clause is a provision contained in the property insurance policy to protect the lender against loss or damage to the property. The mortgagee clause states, in so many words, that the lender is paid first when damage occurs to the property.
The best example of the mortgagee clause is when a fire occurs on the property. The lender, called the mortgagee, is paid by the insurance company first, and any remaining amount of money that exceeds the lender's loan balance is paid to the homeowner.
The mortgagee clause provides unique protection for the mortgagee named in the homeowner's policy. The mortgagee clause creates a separate contract between the insurer and the mortgagee (lender). Even if the borrower (mortgagor) was unable to collect on an insurance claim because he caused the loss, his lender would be paid by the insurance company.
Lenders utilize a variety of provisions to safeguard their interests.
The following is a list of frequent mortgagee or deed of trust document additions.
Its assigns and/or successors (ISAOA)
In the mortgage agreement, you'll find the ISAOA clause. The mortgagee (lender) is entitled to transfer ownership rights to another institution or bank under this clause.
As their interests may appear (ATIMA)
This statement can be used to add coverage for additional parties to an insurance contract. The meaning is similar to ISAOA in that it permits the mortgagee to extend coverage to others without having to mention them specifically.
Clause of Alienation
If you sell or otherwise transfer the property, the alienation clause requires you to pay off your mortgage in full. The due-on-sale clause is another name for this provision. This clause prohibits a new owner from getting the mortgage on its current terms and conditions without the lender's knowledge and agreement. Most mortgages are not assumable, so contact your lender if you plan to change the ownership of your home.
Clause of acceleration
The acceleration clause specifies that if the borrower defaults on the conditions of the mortgage or trust deed, the entire debt is due immediately.The acceleration clause also specifies the conditions under which a lender may demand full repayment of a loan. The acceleration clause, for example, can be triggered if the borrower misses too many loan payments.
Penalty for early payment
If a borrower pays off a loan early, a prepayment penalty clause permits the lender to recover additional interest as a penalty charge.
Prepayment penalties are normally calculated as a percentage of the outstanding loan total. Prepayment penalties are prohibited for most residential mortgage loans under Consumer Financial Protection Bureau (CFPB) guidelines.
There are a few scenarios in which a prepayment penalty is permissible. After three years, a prepayment penalty is not permitted. During the first three years after the loan is closed, a prepayment penalty is permitted. For the first two years after the loan begins, the prepayment penalty can not be more than 2% of the outstanding loan total. For the third year, the prepayment penalty is restricted to 1% of the outstanding loan total.