Large insurance claims and your lenders involvement in your case

[Elliott D.]

I need help understanding this idea that your lender will help you collect on insurance claims if you have a high outstanding loan balance.

In this scenario, if you have a high loan balance on a property, and your property gets largely destroyed or damaged, you then have to collect on a HUGE insurance claim. I have heard from mainly two popular real estate educators, Robert Kiyosaki and Jason Hartman, that it is to your advantage to have a high loan balance as opposed to a paid off property.

a quote from Jason Hartman:

On the contrary, it has been explained to me by an IRS attorney who has handled related cases before that this is not true, that in reality the lender has no skin in this insurance claim and will simply expect you to pay the mortgage regardless of whether or not your property is intact. This is because the loan is an agreement between owner and lender and they don't care if your property is destroyed, they still expect you to pay that mortgage no matter what.

what is really going on here? in your experience, which one of these interpretations is correct?

[Wayne Brooks]

Neither one, really.  The lender obviously wants their collateral protected, but they're not really going to "go to battle for you" on say collecting an extra few thousand in insurance claims.  It's up to you in either case....it's certainly no reason for keeping a high loan balance.