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How Changing Your Mortgage Company Can Affect Your Homeowners Insurance

Why knowing about the Mortgagee Clause is important to you

By Len Mosco – Licensed New Jersey insurance agent for over 30 years

You have finally decided it's time to refinance your mortgage or change to a new mortgage company and take advantage of low interest rates. Everything has gone well and the closing date of the refinance or new mortgage is set. The mortgage company did a great job and has taken care of everything necessary to make this happen, except for one very important thing. They required proof that you maintain homeowners insurance to protect your home as well as their interest in your home. You sent them proof of insurance and all is well however they did not give you what is known in the industry as the new "Mortgagee Clause" and most importantly the new "billing address" that is supposed to appear in that Mortgagee Clause.

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When refinacing or changing mortage companies making sure the correct billing address on the Mortgagee Clause is in place can save you from having your policy accidently cancelled.

What is a Mortgagee Clause?

A Mortgagee Clause is specific wording and a specific mailing address that is placed on the homeowners insurance policy as mandated by the mortgagee company. The mortgagee company is listed as an additional insured under the insurance policy because in the event of a claim, they want to make sure that the proper repairs are made to your property, which they also have a financial interest in.

While you may have provided the mortgage company with proof of your homeowners insurance at the time of the closing, your future homeowner insurance bills will still have to be sent to them for payment. Unfortunately, most of the times the representative from the mortgage company who is helping you with the closing isn't aware that there may be a different address needed for their accounting department to receive future bills from your insurance company.

The problem can occur when your home insurance policy is due for renewal - Here's how

When the renewal of your homeowner insurance comes around, your insurance company sends the bill to your mortgage company for payment. Your insurance company can only send the bill to the address they have on record, which in most cases is the wrong address. The bill doesn't go where it's supposed to, the homeowner insurance doesn't get paid and your policy lapses. This usually creates havoc and a lot of work to get the policy reinstated. This is often the case if you are changing mortgage companies on a refinance.

There is another problem that could occur with this scenario. You may have had some unforeseen claims that you had to put through your homeowner insurance in the past few years, perhaps due to bad weather or some other situation you had no control over. Your insurance carrier was committed to renewing your coverage, even though you had some claims .... but if your policy lapses due to non payment they just may very well not reinstate your coverage or rewrite you a new policy. No problem you say, you will just go to a new carrier and start another policy. Unfortunately, most insurance carriers will not take you on as a new customer if you have had a previous or recent claims history.

So here's the problem, you have lost your coverage for something you didn't know about and had no control of. Sometimes this can be corrected with a lot of back and forth explanations and proof that you were not provided with the correct "billing" address from your mortgage company but this is a lot of work and comes with no guarantee that you will be reinstated.

There have also been cases where a claim has occurred while the policy was lapsed for a situation like the above. In other words, bad timing that a claim has occurred right at the time when your policy was in a lapsed situation. The homeowner insurance carrier may not pay the claim as the policy coverage was not in place. Again, it could take many back and forth calls and complaints to straighten something like this out and there is no guarantee.

Remember, there are many different addresses that mortgage companies use within their many departments but it is the accounting or billing address that is the most important to your homeowner insurance company. Unfortunately, most of the times, the "mortgage clause" that the representative gives you at the time of closing usually contains a general mailing address and not the billing address. The insurance company will only send the bill to the address that they show on the policy.

To protect yourself from ever happening to you, make sure to ask your mortgage representative for the accounting address that is used for your insurance company to send their bills to. If they don't know it call the mortgage company yourself and ask for their "Escrow Billing" department. They will be able to give you the proper address and you can forward this to your insurance agent or carrier.

It is also a good idea to call your mortgage company once a year and read to them the address that is showing up for them on your homeowner insurance to see if it is still correct. The reason for this is like most larger companies, many times they will change addresses for their different departments and not always notify you. A once a year call, around the time of your homeowner insurance renewal can help prevent any issues.

To find out if you have the best coverage you can click here to request a free quote your homeowners insurance. NJ has many options that can help save you money on quality affordable coverage.

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