Mortgagee Clause: Definition And How It Works

Feb 24, 2023

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When you’re obtaining a mortgage, mortgagees (also known as mortgage lenders) put in place certain measures to ensure that the collateral for their investment – your new property – is protected. One such measure is the mortgagee clause, which goes along with your homeowners insurance policy.

What Is A Mortgagee Clause?

A mortgagee clause is a protective provisional agreement between a mortgagee and a property insurance provider. This clause is meant to protect a mortgagee if the mortgaged property is damaged. Protections will be geared toward your lender, but they could benefit you as well. A mortgagee clause in your homeowners insurance policy could end up covering costs that could otherwise put you in deeper debt to your lender.

This type of clause requires the insurer to guarantee payouts when any claims covered by the property insurance policy are made.

Mortgagee Vs. Mortgagor, What’s The Difference?

Since a mortgagee is a mortgage lender, a mortgagor is the borrower. In a real estate transaction, a mortgagee provides a mortgage loan to a home buyer who then offers the title of the property purchased to the mortgagee as collateral.

This means that if a mortgagor is unable to keep up with the monthly mortgage payments and defaults on the loan, the mortgagee can foreclose on the property and sell it to recoup costs.

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