Question for experienced mortgage-owning adults

I’m still new at this whole “grown-up” thing, so pardon the stupidity that might ensue.

(Oblig. xkcd link)

I got a letter from my mortgage bank stating the following:

“Important Hazard/Homeowner’s Insurance Information. Your hazard/homeowner’s policy must reflect the following as loss payee to ensure timely payments of future billings.” with the address of the bank listed below. Even though later in the letter, it admits that **I’m **the one paying the insurance premiums (not the escrow), it still wants to be there as the loss payee.

So first question - What on earth does that actually mean? Does it mean what I think it means, that if something happened to the house, the BANK would get the payout from the insurance company? How is that ok? Apparently I have to, according to their nasty little letter.

Second question - Since I apparently *have *to, how am I supposed to do this? Do I just call the insurance company and ask them who the “loss payee” is? Will they let me change it if I need to over the phone? This isn’t a new mortgage holder or a new insurance company, so why are they hassling me about this now? I don’t remember them asking about this before.

Pertinent infos: Townhouse, in SC.

Thanks for any information!

Most mortgages require the holder to maintain hazard and loss insurance that will cover at least the mortgage amount. Sometimes complete coverage is required, because the loss of a home and possessions tends to turn a borrower into a credit liability even if the nominal loan amount is covered.

In many cases, the insurance (and property taxes) has to be paid from an escrow account maintained by the lender - you pay an extra couple of hundred every month, and they pay your insurance and taxes for you, to assure it’s all kept current.

In any case, they have the right to demand that the insurance holds them as the payee for all mortgage amounts ahead of any other distribution.

Because the bank effectively owns a substantial portion of your home, so when your home goes up in flames, they don’t want you to take the cash and disappear. A mortgage is a secured loan, ie your home is their insurance policy against you doing just that. It is, presumably, a requirement of your mortgage that they are named ‘loss payees’ on your insurance, rather than a requirement of the insurance company.

Not sure. My mortgage, IIRC, I am the beneficiary of my insurance but there is some sort of clause that says the Bank is the mortgage holder.

So if I still owe $200,000 and my house worth $300,000 burns down so badly they won’t bother to rebuild - then they will send a cheque for $200,000 to the mortgage holder, rather than trust me to forward their share of the money. CYA.

The bank also wants ongoing proof that I am insured; if I cancel my policy or fail to renew, they also notify the bank. Makes sense - they want their investment covered. If not, I assume they can foreclose.

Not sure, but I assume if I deliberately burn the place down, I don’t get paid but the bank will get their share?

As mortgage holder, they are treated almost as co-owner.

Presumably in your case, the bank would take their share of the payout and forward the rest to you, but I have no idea how this is defined in the policy or mortgage. That’s why there are 50 pages of fine print in both.

Just call your insurance agency and tell them you need your home’s mortgagee added as a loss payee. They’ll know exactly what to do. It’s easy and not a big deal at all.

According to the terms of my mortgage if I don’t maintain adequate homeowners insurance, the bank will buy a policy for me, and bill me for it. That payment will have a higher priority than the mortgage payment, so if I don’t pay it, I’ll slowly fall into arrears on my mortgage, and yes, eventually be foreclosed on. I also agree to list the bank as a “mortgagee and/or as an additional loss payee”.

There’s also verbiage that states that even though the bank gets first crack at the money, they agree to use it to rebuild my house: “Unless Lender and Borrower otherwise agree in writing, any insurance proceeds, whether or not the underlying insurance was required by the Lender, shall be applied to restoration or repair of the Property, if the restoration or repair is economically feasible and the Lender’s security is not lessened.”

So Lasciel, I strongly suggest you pull out your mortgage (and it may even be on line, mine is at my county’s registry of deeds website), and read what it says about property insurance.

Thanks all - especially Fuzzy Dunlop for the insurance reassurance. :smiley:

It sounds much more reasonable and straightforward when you all explain it - I really have to wonder why they use such official threatening-sounding (yet strangely uninformative) language when they send letters. The thing was three pages long, but all I could get out of it was that they wanted to have their names on the insurance.

I swear, I’m not a dumb person, but without experience with these things, they may as well be a foreign language sometimes. I do wish they had some sort of line-by-line ‘normal english’ translation so I could figure out what they actually want, and what that means to me.

Now off to make sure insurance is properly crediting the right “loss payee.” :rolleyes:

I’ll bet you dollars to donuts they’re already listed as a loss payee anyway - you probably needed proof of a paid policy with them listed when you first got the mortgage. Either they just send these letters out every few years, or the name or main address of the bank changed recently or something.

And just so you know, “ISAOA” stands for “Its Successors And/Or Assigns”

If the loan is more than one year old, it’s probably the last scenario - the legal name or address of the bank changed. If less than a year old it could be because the lender accepted a binder as initial proof of insurance and never received a copy of the actual policy.

I work for a company that monitors mortagage insurance for lenders. I can assure you that we don’t just send letters every year or two. The cost in postage alone would be astronomical. When your insurance company sends policy or billing information to you, a copy also goes to your lender (or a PO box in your lenders name that actually comes to us). So long as we have a current policy on file with a valid mortgagee clause, you won’t get that letter.

So long as we’re including insurance/banking acronyms, ATIMA means “As Their Intrest May Appear” and often used on insurance policies to indicate additional insured or loss payee.

Where do I collect my doughnuts?

The bank probably changed names then, because we had all the insurance paperwork done and proper originally. So I guess what happened is that the insurance sent the policy re-up to the OLD address, so the bank doesn’t know that we renewed it? That makes sense. Again - why can’t they just bloody well SAY that?

"Dear person,

Your insurance renewal happens every year in January. When you renew the policy (usually by paying the yearly premiums), they send us notification that you’ve renewed it. This is is required by the terms of your mortgage with us. This January, we did not get that notification from your insurance.

Can you please contact them and give them our current address information: XXX.

Please also contact us if you did NOT renew your insurance policy, because if you did not renew, and do not find an alternate policy within (timeperiod) we are required by the terms of the mortgage to find and pay for a replacement policy for you.

Your Friendly English-Speaking Bank People"
Really, is that so hard to come up with? I swear to God, you guys could save these people hundreds of pages worth of paper. That’s not even a full page, let alone three double-sided sheets!

The problem is that legal documents need to be completely unambiguous for every conceivable instance or you (and/or any party to the document or agreement) could end up with a costly lawsuit to determine the exact meaning of a given phrase in this particular instance in this particular situation.

The best approach (which I’ve only seen a few times) is a plain-language non-binding summary followed the actual legal, binding terms.

Minor side point on vocabulary:

There’s a common, and growing-more-common, trend in America to use ‘mortgage’ as synonymous with ‘house loan.’ It’s not.

A mortgage is a species of lien on real property (land+house) that you give the bank as collateral to induce them to give you the loan that paid for your house. That’s why you’re the mortgagor and they’re the mortgagee or mortgage holder. It’s a relatively minor nitpick, but not understanding it can make an already confusing situation even more confusing.

I was in the insurance business for about 30 years and this is how the mortgage clause worked 100% of the time. When I say ‘mortgage clause’, I’m referring to the clause in your homeowner’s policy that also states that in the event of a loss to the dwelling, the settlement check will include the name of a mortgagee. The letter you have received from them is simply to advise you that you had better have insurance so they will be protected. Do not allow them to purchase it or you risk paying for coverage that can be costly and ends up protecting only their interest.

After a loss to the dwelling, a two party check is issued by your insurance company naming you and the mortgagee as co-payees and the mortgagee will instruct you to endorse the check and turn it over to them. They will release the funds back to you so you can pay your contractor either all at once or on a percentage basis as structural repair progresses. The purpose is to protect the financial interest of the mortgagee in the property. Any loss to personal property or additional living expense does not name the mortgagee as they have no insurable interest in that aspect of the loss.

If the process didn’t work this way the home mortgage business would risk the loss of billions due to people pocketing the money or making less that adequate repair to the home and possibly reducing its value. This current process protects their investment and allows the mortgage business to continue.

My suspicion is that the bank (the bank’s attorney) did not review the documents correctly when your mortgage was made. The error was discovered in a subsequent audit and you are now being asked to correct it. One of the mortgages I had was sold to at least four different entities, and I was never asked to change the loss payee on my insurance (although this may differ by state).

I recall one paper that I signed when I bought my house said simply that if the bank made a mistake, I promised to help them correct it.

This is likely because when the loan was sold or transferred to another servicer (“service released” is the jargon term), either the new servicer or the prior one sent a letter to the insurance agent/agency/megaconglomerate indicating the new mortgagee and address. So long as the insurance company makes the change on their system prior to the next billing cycle the renewal policy gets sent to the right place and you won’t get a letter.