Mortgage Impairment coverage protects your lender/mortgagee’s interest when you are unaware of a lapse of insurance coverage, and a loss occurs to the mortgaged property. You remain covered as long as these three criteria are met:
The borrower (mortgagor) does not make the customary mortgage payment on the due date
You have taken all customary steps, other than foreclosure or sale, to collect the unpaid loan balance, and
You have not released the mortgagor or other parties from payment because of loss or damage to the mortgaged property.
L&A mortgage impairment coverage is available in the following formats:
Checking basis: Lender must continue to track all insured properties for renewal status of insurance policies and procure coverage (i.e. “force place”) when it is discovered that there is no coverage in force
Ex-checking (exceptions-only) basis: Lender is not required to track renewals of insurance policies, but when it is discovered that there is no insurance coverage in force, it must procure, or “force place coverage”
Ex-checking with deletion of insurance procurement requirement: Basis of coverage relieves the lender of procuring insurance coverage when it is discovered that there is no insurance coverage in force. Note claims are only paid with this option if the loan goes into default.
Balance of Perils coverage is also available as a Mortgage Impairment option: Coverage protects the lender in the event of a loss where coverage was not required of the borrower under the lender’s standard mortgage agreement. Coverage also applies to flood losses in excess of that required to be insured by the borrower to comply with the Flood Act.