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MortgagePoint » Your Trusted Source for Mortgage Banking and Servicing News 52 May 2025 F E A T U R E T here is much uncertainty sur- rounding the recent wildfires that devastated many proper- ties in our Southern California community. As efforts begin to rebuild the destruction and loss caused by these fires, many lenders are looking for guid- ance on how to balance protecting their security with the needs of the borrower. To determine how to strike that balance, it is important for lenders to first under- stand their rights and obligations regard- ing the insurance proceeds. The goal of this article is to give lenders the necessary information so they can determine how best to work with their borrowers. Communication Is Key R egardless of who is entitled to the insurance proceeds, whether the borrower intends to rebuild or if the loan is in default, open communication with the borrower is key to efficiently resolving insurance issues and avoiding future disputes over the proceeds. It is important to ask borrowers questions like—whether they have made a claim, the carriers' response, whether the borrower intends to rebuild, does the borrower have a plan to make monthly payments while waiting on the insur- ance proceeds, has the borrower applied for any federal, state or local grants, etc. Ideally, these discussions can help lenders and borrowers reach a mutually acceptable plan for handling the insur- ance proceeds. Types of Insurance Coverage G enerally, borrowers obtain their own insurance policies that are for the benefit of themselves and their lend- ers. But other types of policies can come into play. Understanding the different types of coverage and how they affect the lenders rights and obligations is an important starting point. Borrower Insurance L enders are usually protected under the borrower's insurance policy as either the "loss payee" or under a "lender endorsement." Lender en- dorsement provisions are generally more robust, but often add additional requirements at the front end. That said, both provisions are intended to protect lenders in the event of an insurable loss. Some important issues to consider with a borrowers' policy include: » Does the policy provide for replace- ment value or the cost to rebuild? The answer may affect the amount of available insurance proceeds. » What if the borrower's policy lapses without the lenders' knowledge? Of- ten, the insurer will let lenders know when a policy lapses. But, to protect themselves, lenders must be vigilant in tracking their borrowers' policies to avoid any lapses in coverage. » What if the borrower drops the lender from the policy? Again, the insurer will usually notify lenders if they are being dropped as a loss payee, but our firm has unfortunately seen instances where the borrower drops the lender from the policy without any notice. Again, lend- ers must be vigilant in tracking policies. » What if the borrowers' policy is insuf- ficient to protect the lender? Do you HANDLING INSURANCE CLAIMS FROM A LENDERS PERSPECTIVE Attorney T. Robert Finlay discusses the importance for lenders in understanding their rights and obligations regarding insurance proceeds, and how to guide their clients in insurance-related matters. B y T. R O B E R T F I N L A Y E S Q . T . R O B E R T F I N L A Y E S Q . is a founding Partner of Wright, Finlay & Zak. Since 1994, Finlay has focused his legal career on consumer finance and mortgage-related litigation, compliance and regulatory mat- ters. Finlay is at the forefront of the mortgage banking industry, handling all aspects of the ever-changing default servicing and mortgage banking litigation arena, includ- ing compliance issues for servicers, lenders, investors, title companies and foreclosure trustees. Finlay guides clients through the complexities of litigation, while being mindful of their core values and business models. He is a regular speaker at industry events and for clients on a variety of loan servicing and mortgage banking issues, including key legislative and legal updates. He may be reached by email at rfinlay@ wrightlegal.net.