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The insurable interest of a mortgagor and Homesteads

Author johnbsims3
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#1 | Posted: 18 Dec 2006 17:21 
44 Am. Jur. 2d Insurance § 953
American Jurisprudence, Second Edition

Insurance

Laura Dietz, J.D., Tracy Farrell, J.D., Margaret Hoag, J.D., Alan Jacobs, J.D., Theresa Leming, J.D., Jack Levin, J.D., William Lindsley, J.D., Anne E. Melley, J.D., of the staff of the National Legal Research Group, Inc., Jaqualin Friend Peterson, J.D., of the staff of the National Legal Research Group, Inc., Jeff Shampo, J.D., Eric Surette, J.D., Lisa Zakolski, J.D.

XXVI. Insurable Interest
B. Property Insurance
3. Interests Related to Title or Ownership
a. Property Subject to Mortgage


§ 953. Effect of foreclosure

The insurable interest of a mortgagor continues after foreclosure and during the redemption period,[FN1] but the expiration of the redemption period of a mortgage is generally regarded as terminating the mortgagor's interest.[FN2] Even where parties continue to reside, without permission, in the insured home following foreclosure they no longer have an insurable interest since they have no expectation they will be allowed to remain in the home.[FN3] However, if parties continue to reside in the home pursuant to an understanding and an expectation that they will exercise a statutory right of first refusal, they may continue to have an insurable interest even though the right of first refusal had not yet been exercised.[FN4]
Where a purchaser at a foreclosure sale bids in an amount sufficient to fully extinguish the mortgagor's entire debt, the mortgagor no longer has an insurable interest after the sale is confirmed, since the mortgagor no longer has an actual, lawful, and substantial economic interest in the safety or preservation of property.[FN5] Thus, a mortgagee's insurable interest in the premises terminates, and it may not recover under the mortgagee loss payable clause contained in the policy insuring the premises, where the mortgagee successfully bids the full amount of the mortgage debt at the foreclosure sale or fails to obtain a deficiency judgment.[FN6] However, a successful bid at a foreclosure sale by the mortgagee for less than the balance due on the mortgage does not terminate the mortgagee's insurable interest in the insurance proceeds tendered prior to the sale,[FN7] and to the extent that a deficiency exists after the foreclosure and sale, the debt remains, and an insurable interest in the mortgagee as a loss payee of the mortgagee clause of a fire policy survives.[FN8]
A purchaser at a sale under a mortgage foreclosure has, during the redemption period, an insurable interest in the property.[FN9]


[FN1] Pattison v. State Farm Fire & Cas. Co., 209 Kan. 167, 495 P.2d 975 (1972); Crowell v. Delafield Farmers Mut. Fire Ins. Co., 463 N.W.2d 737 (Minn. 1990); Phoenix Federal Sav. and Loan v. Great Southwest Fire Ins. Co., 1979 OK CIV APP 49, 603 P.2d 356 (Okla. Ct. App. Div. 2 1979).
[FN2] Pattison v. State Farm Fire & Cas. Co., 209 Kan. 167, 495 P.2d 975 (1972); Brown v. State Farm Fire & Cas. Co., 363 So. 2d 967 (La. Ct. App. 3d Cir. 1978).
[FN3] Bonaparte v. Allstate Ins. Co., 49 F.3d 486 (9th Cir. 1994).
[FN4] Crowell v. Delafield Farmers Mut. Fire Ins. Co., 453 N.W.2d 724 (Minn. Ct. App. 1990), review granted, (May 16, 1990) and decision aff'd, 463 N.W.2d 737 (Minn. 1990).
[FN5] Marion v. Town & Country Mut. Ins. Co., 59 Ark. App. 120, 952 S.W.2d 681 (1997); Kessler v. Government Employees Ins. Co., 179 A.D.2d 492, 579 N.Y.S.2d 13 (1st Dep't 1992).
[FN6] Melino v. National Grange Mut. Ins. Co., 213 A.D.2d 86, 630 N.Y.S.2d 123 (3d Dep't 1995).
[FN7] Intercounty Mortg. Corp. v. McCrof Realty, Inc., 261 A.D.2d 183, 690 N.Y.S.2d 25 (1st Dep't 1999).
[FN8] Builders Affiliates, Inc. v. North River Ins. Co., 91 A.D.2d 360, 459 N.Y.S.2d 41 (1st Dep't 1983).
[FN9] Stockton Nat. Bank v. Home Ins. Co. of New York, 106 Kan. 789, 189 P. 913, 11 A.L.R. 1304 (1920)
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The insurable interest of a mortgagor and Homesteads
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