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MortgagePoint » Your Trusted Source for Mortgage Banking and Servicing News 44 March 2024 F E A T U R E S T O R Y from fundamental principles of equity and fairness. Comparative Legal Perspectives I n Rollins v. Bravos, the Maryland court observed that in Maryland, "where a mortgage requires the mortgagor to insure the property against loss and the property is so insured when a loss occurs as to which the insurance applies, the pro- ceeds of the policy of insurance must be applied to the extinguishment of the debt." In Wheeler & Co. v. Factors & Traders Ins. Co. of New Orleans, the Court stated that "if the mortgagor is bound by cove- nant or otherwise to insure the mortgaged premises for the better security of the mortgagee, the latter will have an equita- ble lien upon the money due on a policy taken out by the mortgagor to the extent of the mortgagee's interest in the property [is] destroyed." The Wheeler Court noted at that time that the Thomas case was the leading case in this country on this issue. Modern Interpretations and Restatement T he principles enunciated in Thomas and Wheeler are fully consistent with the leading modern case on this topic. The reasoning behind court decisions is reflected in the American Law Institute's Restatement (Third) of Property (Mortgag- es) (2007). The basic principle is set out in Restatement §§ 4.7–4.8. Section 4.7 states in relevant part (emphasis added): Mortgagee's Right to Funds Paid Under Casualty Insurance or Taking in Eminent Domain (a) Unless a different disposition is provid- ed in the mortgage, the mortgagee has a right to the following funds paid on account of loss or damage to the mortgaged real estate, to the extent that the mortgagee's security has been impaired by the loss or damage …: (1) the proceeds paid by a casualty insurer due to the occurrence of an insured loss to the real estate, if the mortgagor promised the mortgagee, in the mortgage or otherwise, to purchase the insurance[.] Restatement § 4.8 states in relevant part (emphasis added): Effect of Foreclosure on Mortgagee's Right to Insurance and Eminent Domain Proceeds (a) Where a mortgagee has a right to foreclose a mortgage because the mortgage obligation is fully due and payable and the mortgagee has a right to casualty insurance or eminent domain proceeds under § 4.7, the mortgagee may either: (1) recover from the insurance proceeds …; or (2) foreclose on the mortgaged real estate and, to the extent that doing so does not satisfy the mortgage obligation, recover the balance from the insurance proceeds or from the emi- nent domain award. Comment a to Restatement § 4.8 is particularly pertinent. It explains (empha- sis added): In the event of an insured casualty loss, the mortgagee may satisfy the mortgage obli- gation by two different means. It may recover on the insurance policy, up to its limits, the full amount of the mortgage obligation at the time of the loss … Alternatively, the mortgagee may proceed first to foreclose the mortgage. When this approach is followed, and the foreclosure sale does not yield the full amount of the mort- gage obligation, the balance may be recovered under the insurance policy, up to its limits. The Takeaway I n the intricate dance between property loss and foreclosure, one thing is clear: when unforeseen circumstances occur, insurance proceeds offer a valuable layer of security to a lender. Magazine INTRODUCING The Five Star Institute's premier trade publications, DS News and MReport, have joined forces to become MortgagePoint. This new publication brings you the same exclusive news, features, interviews, and commentary you've come to expect from Five Star—now taken to the next level and all in one place. MortgagePoint is your one-stop shop for coverage of the full spectrum of mort- gage, from originations to default. Scan the QR code to sign up and learn more. THE INDUSTRY'S MOST VALUED PUBLICATIONS JOINING FORCES