Sec. 05.06.01.20. Preclaim Payments and Insurance Coverage

A. Preclaim Payments.

(1) The provisions of this section apply to all public agency insured lenders, and to private insured lenders only at the sole discretion of the Fund.

(2) After receipt of notice of default, the Fund, upon request of an insured lender, shall make the periodic payments to the lender that are due under the terms of the insured mortgage, except late charges and mortgage insurance premiums.

(3) The periodic payments shall be made for all missed debt service payments beginning with the default for which the Fund is given notice in accordance with Regulation .19A of this chapter. The periodic payments shall continue until the default is cured or the insured loan is foreclosed upon by the lender or assigned to the Fund.

(4) If the default is cured, the amount of periodic payments made shall be reimbursed by the lender to the Fund. If the insured loan is foreclosed upon by the lender, the amount of periodic payments shall be excluded from the loss computed to the lender. If the loan is assigned to the Fund, the amount of periodic payments shall be included in the claim paid by the Fund in accordance with Regulation .21C(4) of this chapter.

(5) If the Fund makes periodic payments under this section, then it shall be considered to obtain from the lender the right to recover from the property or the borrower, as may be permitted under the loan documents, the total of all periodic payments plus that amount which equals the mortgage insurance premiums not paid to the Fund by the lender on behalf of the borrower. This right of recovery of payments is additional to and cumulative with all other rights arising from an assignment of an insured mortgage to the Fund.

(6) Periodic payments made to the lender by the Fund may not be considered a remedy of the borrower's default under the terms of the insured loan or any collateral agreements.

B. Insurance Coverage.

(1) Inclusions. The Fund insures only monetary losses, as computed in accordance with Regulation .21C or D of this chapter.

(2) Exclusions. The Fund does not insure property losses, including without limitation title risk, the risk of loss from defective construction, casualty risk, or any other reduction in project value due to insurable risk or force majeure.

(3) Preclaim Property Loss. If any reduction in value due to casualty, title loss, act of God, or other damage to or destruction of the property occurs before the assignment of a loan to the Fund, the Fund has the option, at its sole discretion, to:

(a) Reduce the claim by the amount of the reduction in property value or anticipated loss and permit the lender to enforce its rights under any applicable insurance policies or at law or in equity; or

(b) Require the lender to assign to the Fund its rights, whether under insurance policies or at law or in equity, to be compensated for the loss, without reduction in the claim by reason of the reduced property value or anticipated loss.