What is a Mortgagee Clause?
Of all the moving pieces of the puzzle that makes up the home-buying process, the mortgagee clause is one that’s often easy to forget, especially for homeowners. Read on to learn what a mortgagee clause is and why it’s important to lenders and insurance companies.
What is a Mortgagee Clause?
A mortgagee clause is simply a description that outlines who has the lien on the property that is being bought by the homeowner. If you own a home or are looking for one, you know that a mortgage loan allows you to take out a loan with the property as collateral. This means that the mortgage company or bank that gives you the loan has a lien on the property and has the legal right to claim it if you default on your payments. A mortgagee clause makes clear exactly who has that right.
Mortgagor and Mortgagee
As you go through the home-buying process, you’ll hear two terms: mortgagor and mortgagee. The mortgagor is you (the homebuyer), who has taken out the loan and is paying it back, with interest, over time. The mortgagee is the party or entity who grants the loan and so typically refers to a lender, bank, or mortgage company.
Mortgagee Protection Clause
The mortgagee protection clause is important because it confirms the details of who has the lien on the home to insurance and escrow companies. If the home is damaged by fire or flood and its value drops as a result, the mortgagee clause delineates exactly who should receive financial compensation from insurance.
While this might seem like a straightforward process, your loan will actually change hands during its lifetime as it is purchased from your lending company by other mortgage companies. This typically isn’t something that you have to worry about, but the mortgagee clause ensures that compensation will be due to whatever entity takes on the lien in the future by including two acronyms on official documentation.
You might technically own the property (and homeowner’s insurance will most likely help you with repairing damages from a naturally occurring disaster), but since the bank has vested interest in its value, they want to ensure that they will be compensated and that the collateral on their loan is well-protected. If your loan or lending company is purchased during the lifetime of the mortgage, the mortgagee protection clause ensures that compensation is paid to whatever party is entitled to it, no matter how many times it has changed hands.
There are two acronyms that you will see in the mortgagee protection clause: ISAOA and ATIMA. While they may look complicated, their meaning is actually fairly straightforward.
ISAOA stands for “Its successors or assigns.” This refers to any company or entity that purchases either the mortgage or the bank or lending company itself, and ensures that they also assume the rights to the property as the initial lending company hands them over (again, not a process that will interfere with your loan or change any terms in your loan contract).
ATIMA stands for “As their interests may appear,” and simply confirms that any successors to the initial loan company will have the same rights to compensation or reimbursement if the property is devalued at any point during the lifetime of the loan.
How the Mortgagee Clause Works
As a homeowner, you won’t have to worry about determining the correct mortgagee clause for official documents. Your lender will make sure that it contains all of the correct details and contact information. When you look over documentation, the mortgagee clause will look something like this:
“Simpson Home Loans Servicing, LP
PO BOX 12345
Chicago, IL 60007
Loan Number: 1234567890”
The only time you as a homeowner might be asked to do something concerning the mortgagee clause is if an escrow company (a third-party company that holds onto any funds deposited by you or the seller into escrow during the closing process) or an insurance company (for either homeowner’s insurance or for a title check) asks for it. If this happens, all you will need to do is reach out to your lender or bank. They’ll make sure to send it over and it will be out of your hands!
Learning More About the Homebuying Process
The mortgagee clause is only one of dozens of terms thrown around during the homebuying process. While buying a home can quickly get overwhelming, remember that your mortgage lender is a great resource when it comes to learning more about the buying and financing process. There’s no such thing as a “dumb” question when it comes to buying a home, especially when your finances and future depend on it!
This page last updated: March 21, 2022
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