15:20
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LSDefine
Simple English definitions for legal terms
open mortgage clause
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A quick definition of open mortgage clause:
An open mortgage clause is a part of an insurance policy that protects the rights of a lender when the property being insured is subject to a mortgage. This clause usually states that any insurance payouts must be divided between the borrower and the lender based on their interests. However, an open mortgage clause does not protect the lender if the borrower does something to invalidate the policy, such as committing fraud. This type of clause has largely been replaced by the mortgage-loss clause, which provides more protection for the lender.
A more thorough explanation:
An open mortgage clause is a provision in an insurance policy that protects the rights of a mortgagee when the insured property is subject to a mortgage. This clause usually provides that any insurance proceeds must be allocated between the named insured and the mortgagee "as their interests may appear."
For example, if a homeowner has a mortgage on their property and the property is damaged in a fire, the insurance company will pay out the insurance proceeds to both the homeowner and the mortgagee. The amount each party receives will depend on their respective interests in the property.
However, an open mortgage clause does not protect the mortgagee if the insured mortgagor does something to invalidate the policy, such as committing fraud. In such cases, the mortgagee may not receive any insurance proceeds.
Overall, an open mortgage clause provides some protection for the mortgagee, but it is not as comprehensive as a standard mortgage clause.