Finance of America Lender is requiring to be "Additional Insured"

[Emily Di]

In California. I am in process on a refi of a 4-plex rental property via Finance of America Commerical. We've already completed appraisal. FoA is requiring they be listed as "additional insured," which my insurance policy does not allow. I have now been getting quotes for commercial policies but the cost increase is considerable.... from $1600 - 4000 / more per year. It makes the overall loan cost unattractive and I'm sure many lenders could beat it, even at higher interest rates. Has anyone else run into this? If so, what was the outcome? 

[Jeff S.]

Looks like you’ll have to educate your lender, @Emily Di.

An “Additional Insured” only has liability protection under a policy. There is no coverage for physical loss such as vandalism, theft, fire, wind, hail, and so on. That is, if the home burns down, your lender is not covered. This is not what they want though they probably don’t understand it.

Makes me wonder what their Deed-of-Trust requires.

A wise lender will expect to be added as a “Mortgagee.” Some companies will more broadly call this the “Loss Payee.” Either works, though “Loss Payee” is a bit broader and often includes non-real estate related property such as auto loans.

This should add no cost to your policy.