What Is A Mortgagee Clause?

4 Min Read
Updated March 9, 2024
Written By
Victoria Araj
woman reviewing documents

As a home buyer, you might already be familiar with the process of getting a mortgage. As a result of this extensive process, the mortgage lender will often take precautions to ensure that they can avoid too many losses. One of these precautions is a mortgagee clause in the insurance policy taken out on a mortgaged property.

Mortgagee Clause, Defined

The mortgagee clause is a provision added to a property insurance policy that protects the lender (or the investors who actually own the mortgage), also known as the mortgagee, from suffering major losses on their investment. The mortgagee clause ensures that the insurance provider will pay the mortgagee their expected payments if physical damage or another kind of loss occurs to the mortgagor’s – meaning the borrower’s – property.

Mortgagee Vs. Mortgagor

You already know that a mortgagee is a mortgage lender and a mortgagor is a borrower, but let’s talk more about the two parties’ relationship with each other and the insurance provider. In a real estate transaction, a mortgagee gives a mortgage loan to the mortgagor in exchange for the title of the property purchased, which is used as collateral.


Therefore, if the mortgagor stops making monthly payments or defaults on the loan, the mortgagee can foreclose on the property and sell it. However, if the property is damaged, the mortgagor may not be able to make monthly payments. The mortgagee clause would be useful in this situation because it states that the mortgagee will be paid even if the property is damaged.


Mortgagees require that mortgagors purchase a homeowners insurance policy to protect the house from the cost of damage. In the case of a property damage, the insurer is required to guarantee payouts when claims covered by the homeowners insurance policy are made.

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What’s The Purpose Of Mortgagee Clauses?

Mortgagee clauses are put in place to offer protection for the house and the lender in a real estate transaction. They safeguard the mortgagee if the property becomes damaged. For example, if a home is totally destroyed or no longer livable, the insurance company would reimburse the mortgagee the remaining amount on a mortgage and release the mortgagor from any remaining mortgage debt.

As previously mentioned, mortgagees will require that mortgagors purchase an insurance policy to protect the house from damage. Homeowners insurance and renters insurance are two types of property insurance. Homeowners insurance is required for owners who have purchased property with a mortgage, while renters insurance is usually optional for those renting someone’s property

Mortgagee Clause Terms

Now, let’s look at some of the components that are important when it comes to a typical mortgagee clause.

Lender Protections

As previously mentioned, there are many benefits and protective provisions that come with mortgagee clauses.


ISAOA is a part of the mortgage clause that stands for “its successors and/or assigns.” It gives the mortgagee the ability to transfer their rights to another bank or institution, allowing mortgagees to sell the mortgagor’s loan on the secondary mortgage market. It’s common for mortgagees to sell mortgagors’ loans to save up for future loans.


Another acronym that is common to see in mortgage clauses is ATIMA. This stands for “as their interests may appear,” and is used to extend an insurance policy to cover other parties that the mortgagee does business with.

How Do You Get A Mortgagee Clause?

If you’re interested in getting a mortgagee clause, make sure to reach out to a lender so that a mortgagee contract can be added to your current contract. Depending on the lender you choose, you may be required to agree to a mortgagee clause in your contract before you can get approved.

The Bottom Line: Add A Mortgagee Clause For Protection

Now that you’ve gotten to learn more about mortgagee clauses and their protections, you can decide if adding one to your contract is right for you. Mortgagee clauses can be very beneficial for homeowners and provide protection for both the house and the mortgage lender.


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Get matched with a lender that will work for your financial situation.


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