If the building that supplies your cash flow is destroyed by fire, obtaining a new loan for reconstruction may prove difficult in the present lending environment. Many lenders require enough collateral to meet the estimated value of reconstruction – and often require borrowers to put down more equity than planned, leaving customers with bad news when least expected.
With fire insurance proceeds available, how can this happen? Many fire policies allow the proceeds to be paid to the mortgage holder(s). Even though the purchase-money mortgage may be paid off, your lender may apply its construction loan equity requirements to the reconstruction, effectively preventing reconstruction.
Avoid this result with a casualty policy and coordinated mortgage and lease provisions that apply the insurance proceeds to reconstruction at your election.
Today’s real estate tip is brought to you by Rick Smith, a member of Bernstein Shur’s Real Estate Practice Group. Stay tuned for more useful tips for real estate professionals.
For more information on casualty policies and insurance proceeds, contact Rick at email@example.com or 603 623-8700 ext. 8829 or 207 774-1200.