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55 May 2025 May 2025 » F E A T U R E does not require a borrower to obtain a specific form of insurance (i.e., earth- quake coverage) nor broadly states that all insurance proceeds shall go to the lender, then borrower is entitled to the proceeds for the earthquake insurance that was not required under the deed of trust. As the court held following damage from the 1994 Northridge earthquake: "The court held that the provision did not apply to earthquake insurance proceeds because the paragraph containing the pro- vision concerned only insurance required by the lender, and the lender did not require the owner to obtain earthquake insurance." Provisions Giving the Borrower the Right to Use Proceeds to Repair or Rebuild M any deeds of trust contain lan- guage along the following lines: Insurance proceeds "will be applied to restoration or repair of the property, if the lender deems the restoration or repair to be economically feasible and determines that lender's security will not be lessened by such restoration or repair." Under this language, the lender has the sole discretion to determine wheth- er the repair is "economically feasible." Unfortunately, there are very few cases determining exactly what that means. However, it is likely that a court would apply the covenant of good faith and fair dealing to the contract, ensuring that the lender must exercise its discretion in good faith. In other words, lenders with this language in their deeds of trust should not unreasonably refuse to let the borrower use the funds to repair or rebuild the property. Other standard deeds of trust will contain similar language, providing that the funds can be used to repair the property so long as the lender's security is not impaired. Under this language, so long as the land value of the property is sufficient to secure the Lender's Deed of Trust, the lender's security interest is arguably not "impaired." As a result, the lender is arguably required to let the borrower use the insurance proceeds to repair or rebuild the property. But, if the land value is insufficient to cover the loan amount, then the lender can require that the proceeds be used to pay down the loan. Loose Ends! U nfortunately, many deeds of trust and the courts that have weighed in on these issues don't answer every ques- tion that might pop up. For instance: » Who is entitled to the insurance proceeds designated to cover personal property or alternative living? » Assuming the deed of trust contains the rebuild language discussed above, is the lender required to apply the insurance proceeds to pay the loan down to the point where the security is no longer impaired and then let the borrower use the remaining funds to repair or rebuild the property? » What if the lender and borrower disagree on whether the security is impaired or not or whether repair is economically feasible? » Who is obligated to pay for the cost of the public adjuster? » Since the answers to these questions depend on several factors, we rec- ommend contacting your preferred counsel or our office to discuss your specific situation. Handling the Insurance Proceeds N ow that the lender has determined who is entitled to the insurance proceeds, the next challenge is getting the insurance proceeds and then deter- mining what to do with the funds. Un- fortunately, this is where problems, such as those discussed below, often arise. Getting Proceeds From the Insurer I n the case of a borrower-purchase policy, the lender is often in the dark YOUR TRUSTED SOURCE FOR MORTGAGE BANK ING AND SERVICING NEWS DECEMBER 2024 Magazine PRESERVING the AMERICAN DREAM Industry experts from Five Star's PROPERTY PRESERVATION EXECUTIVE FORUM discuss the trends and challenges facing the field services sector as we head into the new year. ALSO IN THIS ISSUE EXPERT INSIGHTS ASSESSING TODAY'S LANDSCAPE Derrick Barker, Co-Founder & CEO of Nectar, discusses his beginnings in the mortgage market CONTRIBUTED SPOTLIGHT: LEGAL LEAGUE IN PENNSYLVANIA, IS THERE A RIGHT TO JURY TRIAL IN IN REM FORECLOSURE ACTIONS? THE NATIONAL PROPERTY PRESERVATION CONFERENCE CELEBRATES TWO DECADES OF INDUSTRY ACTION REIMAGINING CREDIT AND VERIFICATION WORKFLOWS Subscribe to MortgagePoint and MortgagePoint Digital now! 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YOUR TRUSTED SOURCE FOR MORTGAGE BANK ING AND SERVICING NEWS FEBRUARY 2025 Magazine In This Issue: THE RISE OF MULTI- GENERATIONAL HOUSING: LENDING TRENDS AND OPPORTUNITY EXPERT INSIGHTS MICHAEL GEVURTZ CEO AND FOUNDER OF BLUEBIRD LENDING CHANGES TO CALIFORNIA'S HOME OWNER BILL OF RIGHTS TAKE ADVANTAGE OF A SLOW MARKET TO SHORE UP PROCESSES With rates starting to drop, savvy lenders are moving to get ahead of the game before a rebound. SPECIAL SECTION WHITE HOUSE NOMINEES A look at President Trump's picks for his cabinet and other high-level positions that are sure to shake up the industry. Once the Smoke Clears MortgagePoint examines how the CALIFORNIA WILDFIRES could have wide-ranging impacts on government programs, insurance coverage, and the housing market. YOUR TRUSTED SOURCE FOR MORTGAGE BANK ING AND SERVICING NEWS JANUARY 2025 Magazine ECONOMIC FORECAST 2025 MortgagePoint surveys a panel of economists and industry experts about where the housing market and mortgage industry will be headed in a new year and under a new incoming president.