Understanding the difference between Loss Payee and Mortgagee

[Beth Johnson]

When talking with new and aspiring private money lenders, I always recommend getting added as an insured on the borrower's property hazard insurance policy (known as an insurance binder). I had a new PML ask me about the difference between a Loss Payee and a Mortgagee so I thought I would share some commentary from my insurance agent partner on the subject: 

Quick point of reference between the difference between Loss Payee and Mortgagee:

Mortgagee: the Lending company/entity that lends the money for the property

Loss Payee: an entity or party that has an insurable interest of said property.

By default, the Mortgagee is both the one that lends and the one that has an insurable interest and therefor both descriptions pertain to “Mortgagee”.

Which is preferred: Traditional Banks always only require they be listed as the Mortgagee whereas Hard Money and or Private Money; it’s 50/50.Now, you’re probably wondering in what instance would someone be listed as a Loss Payee but not Mortgagee- well, let’s say someone lends the property owner money in a non-traditional fashion - we can chat more about this later -whether it be for the property or for something else, doesn’t matter, and the borrower uses the property as collateral. The person who lends the money can require that they be listed as a Loss Payee. They aren’t the mortgagee, but they do have an insurable interest on the property. If it were me: I’d ask to be listed as both. No harm, no foul in requiring/requesting it. The Insurance companies for many renovation policies don’t usually have an issue with listing the lender as both the loss payee and mortgagee.