standard mortgage clause

standard mortgage clause

A clause in a fire and casualty insurance policy providing additional coverage for the mortgage lender and also providing that the lender's rights to recover proceeds will not be compromised if the borrower is guilty of wrongdoing relative to the insured loss.Also called a union mortgage clause.Contrast with an open mortgage clause.

Example: Ted cannot make his mortgage payments and fears foreclosure, so he burns down his house to collect the insurance proceeds. Unfortunately, his neighbor saw the whole thing and alerted the police. Ted will not be able to collect any insurance money, but his mortgage lender will because it was not involved in the wrongdoing.