The loan provisions governing what happens to insurance proceeds after damage and to award money after a taking, including whether funds rebuild the property or repay the loan.
The longer version
These clauses decide who controls the money at the worst possible moment. Below a threshold, proceeds usually go to the borrower to restore. Above it, the lender typically holds and disburses them against a restoration budget, or may apply them to the debt if restoration is not feasible.
The conditions on restoration are where the negotiation sits: whether enough time remains on the loan term, whether leases stay in place, whether the remaining proceeds plus borrower equity actually cover the work. Those tests are written at closing and read years later under pressure, so ambiguity here is expensive.
Common questions
- Who controls insurance proceeds after a casualty?
- It depends on the amount and the loan documents. Below a stated threshold the borrower usually receives them to restore. Above it the lender holds and disburses against a restoration plan, subject to conditions.
- When can a lender apply proceeds to the loan instead?
- Typically when restoration is not economically feasible, when insufficient time remains before maturity, when major leases would terminate, or when an event of default exists.
- What is a condemnation award?
- Compensation paid when a government takes property through eminent domain. The loan documents treat it much like casualty proceeds, with the lender's rights depending on whether the taking is partial or total.