Standard Mortgage Clause
Definition - What does Standard Mortgage Clause mean?
A standard mortgage clause (also called a union mortgage clause) is an insurance provision that covers the mortgage lender but not the borrower for a loss involving the mortgaged property. This clause protects the lender in the event that the borrower intentionally damages the property.
Insuranceopedia explains Standard Mortgage Clause
The standard mortgage clause allows the mortgagee to still collect money from the insurance company even if the policy is voided because of wrongdoing to the mortgaged property on the part of the insured borrower.
Suppose, for example, that a person sets an insured and mortgaged property on fire with the intent of filing a fraudulent claim with the insurance company. Upon investigation, the fire is deemed an act of arson. The insurance company will then nullify the insured's policy. But, thanks to the standard mortgage clause, the mortgagee can still claim money from the company for the loss involving the damaged property.