A mortgagee clause is a provision in a property insurance policy that protects the lender (mortgagee) from losses incurred due to damage to the property. It is a protective provisional agreement between a mortgage lender and a property insurance provider that safeguards the lender from incurring financial losses in cases where the mortgaged property becomes damaged. The mortgagee clause ensures that the insurance company pays the lender if the property is damaged and guarantees that they’ll receive their money even when borrowers are responsible for the destruction of the property.

A mortgagee clause is a separate agreement between the mortgage lender and the insurance company that is insuring the property. It is a part of the homeowners insurance policy that protects the lender in the event of loss or damage to the property. A lender would not lend a substantial amount of money secured by property without the inclusion of a mortgagee clause in the borrower’s property insurance policy, so they are an important part of mortgage and property insurance contracts.

To provide protections that ensure a return on the lender’s investment if the home is damaged or destroyed, several sections are commonly included in the mortgagee clause:

• ISAOA: This extends the protections granted by the mortgagee clause to separate institutions should they decide to purchase the loan. This allows the lender to operate in the secondary mortgage market.

• ATIMA: This extends the insurance policy’s coverage to any associated parties who may incur losses if the property becomes damaged or destroyed.

• Payee: The mortgagee clause stipulates that the mortgagee (lender) is listed as payee on any insurance payments to ensure the property can be restored to its pre-damaged condition. If the borrower stops making insurance payments or the policy is canceled, the loss payee will be notified and given the option to force a new policy with a different insurance company.