What Is a Mortgage or Lenders Loss Payable Endorsement?
When you buy property, such as a home (real property) or a car (personal property), and make payments on it, the party that lent you the money to buy it will need a way to protect its financial interest. To do this they will require you to add to your home or auto insurance policy a Mortgage or a Lenders Loss Payable endorsement.
In effect, these endorsements say that if there is a loss to the property, the lender will get advance notice of it and they will have the right to the proceeds of the claim to the extent of their financial interest in the property. For example, let's say there is a fire and the homeowner's house is a total loss resulting in a claims payout if $300,000. If the mortgage balance is $250,000, the lender will get $250,000 and the homeowner will get the remaining $50,000 — less any deductible.
The endorsements also say that if the insurance becomes voided because of fraud or some other violation of the policy, the lender's interests will be protected and it will still be able to collect on any claim.
The lender in turn is obligated to notify the insurance company if it learns of any change in ownership, occupancy or exposure to the property. The lender also agrees to pay any premiums due if the named insured fails to make payments.
Without a mortgage or lenders loss payable clause on a policy, it's unlikely the lender would be willing to let the borrower have the money needed for the purchase.
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