SpinsAgency
Expert
- 30
For many years, I have never had an issue with any mortgage lender understanding that they cannot be added to a Condo Master Policy for the HOA since they do not have an insurable interest. I have never had a lender questions me more than once. I explain the issue and they accept it and move on.
The last 3 days I have had a mortgage broker arguing with me regarding adding the lender for their buyer of an individual unit requiring to be added to the master policy as AI/Loss Payee. Since I have not had so much push back in many years, I decided to reach out to the underwriters for both the Condo propert and GL policies. They both responded with the explanation that the unit owners lender has zero insurable interest as the association is not borrowing the money. I completely agree with both of them, but the mortgage broker still won't accept our explanation.
Their question is, how is the lenders interest protected? I'm not sure how to address this question specifically. I have explained that the unit owner is borrowing money to buy a box of air. Unless the unit owner is responsible for some of the building items (which they are not), the lender has no rights to the unit owners contents or to the master policy. The association didn’t borrow the money. The only thing I can do is issue an evidence of property insurance (which I have done). Again, The lender cannot be added as an additional insured to the Master policy as they do not have an insurable interest.
Now I do know most HO6 policies will only cover $1,000 as a limit unless the unit owner indicates more. The unit owner would need to determine how much it would cost to replace the unit items they are responsible for, such as flooring, wall coverings, lighting fixture, plumbing fixtures, cabinets, built in appliances, and any and all owner installed improvements.
But this amount will most likely not reach the full amount of the mortgage. So how do I answer the question regarding how is the lenders interest protected? Are lenders that lend for condos never fully protected?
Thanks in advance for any help!
The last 3 days I have had a mortgage broker arguing with me regarding adding the lender for their buyer of an individual unit requiring to be added to the master policy as AI/Loss Payee. Since I have not had so much push back in many years, I decided to reach out to the underwriters for both the Condo propert and GL policies. They both responded with the explanation that the unit owners lender has zero insurable interest as the association is not borrowing the money. I completely agree with both of them, but the mortgage broker still won't accept our explanation.
Their question is, how is the lenders interest protected? I'm not sure how to address this question specifically. I have explained that the unit owner is borrowing money to buy a box of air. Unless the unit owner is responsible for some of the building items (which they are not), the lender has no rights to the unit owners contents or to the master policy. The association didn’t borrow the money. The only thing I can do is issue an evidence of property insurance (which I have done). Again, The lender cannot be added as an additional insured to the Master policy as they do not have an insurable interest.
Now I do know most HO6 policies will only cover $1,000 as a limit unless the unit owner indicates more. The unit owner would need to determine how much it would cost to replace the unit items they are responsible for, such as flooring, wall coverings, lighting fixture, plumbing fixtures, cabinets, built in appliances, and any and all owner installed improvements.
But this amount will most likely not reach the full amount of the mortgage. So how do I answer the question regarding how is the lenders interest protected? Are lenders that lend for condos never fully protected?
Thanks in advance for any help!