All Forum Posts by: John Hammond

So if there is an event that renders the land worthless I would lose all of the money I loaned?

For example the building and land wash into the ocean during a landslide.  The insurance will pay to rebuild the house, but the land will be underwater from here on out.  The borrower stops paying and the lender forecloses.  There is no possibility of building.  No one will buy the property, and the lender is out the money they loaned.

The lender would essentially be the only one losing money in this scenario.  If this is the case, I'm surprised banks would ever lend on cliff-side mansions in California.  Surely there has to be a system in place that they could get their money back?  

Sorry if these concepts are rudimentary.  I'm new to all of this so bear with me if there is something obvious that I'm unaware of.

We just closed last week. There was a section in the mortgage that states that the owner will have a policy that covers the "full insurable value" and a lot of other legal jargon.  The gist of the paragraph is that he needs to have enough insurance, and if I'm not okay with it, I can pay the difference and add that onto his loan at the highest interest rate allowed by law.

A couple days after closing they sent over the evidence of insurance document and the policy is covered for 275K less than the amount I loaned him.  I have heard mortgage companies requiring the borrower to be insured up to the amount of the loan, but I don't know what this looks like in practice.

Is he under insured?  I'm new to owner financing and I may be misunderstanding insurance policies from a lender's standpoint.  I wanted to consult you guys before speaking with an attorney.  Any advice is greatly appreciated.  Thanks!