Loss Payable Clause | Propertylogy

Loss Payable Clause

By on May 11, 2019

A loss payable clause is a provision in a policy that enables a lender to claim for losses should a mortgaged property be destroyed and the borrower defaults on the loan.

In a way, it provides protection to lenders (third party) from losing their money like a typical mortgage insurance policy, except that the conditions for the claims to be valid are different.

In this case, both conditions of destruction and default must exists.

Homeowners might think that loss payable clauses (also known as loss payee clause) help them to get away scot-free from paying off the loan. And it can be a timely assistance especially when they have had their home condemned for one reason another.

But this is not really the whole picture.

For one, a borrower is still liable for a mortgage should the secured property be destroyed. And delinquencies and defaults are still going to wreak havoc on the borrower’s credit.

Such claims are not acts of charity and compassion from corporations. But a way in which they ensure that they get paid. The odds of homeowners who defaults when they lose their homes to natural disasters is high.

On top of that, the payments are made to the mortgagee.

Homeowners (mortgagers) will have to buy their own insurance coverages in order to make claims for damages to their homes.

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