CONSOLIDATED LAWS OF NEW YORK

REAL PROPERTY LAW

CHAPTER 50 OF THE CONSOLIDATED LAWS

ARTICLE 8--CONVEYANCES AND MORTGAGES

Real Property § 254 Construction of clauses and covenants in mortgages and bonds or notes

4. Mortgagor to keep buildings insured.

(a) A covenant "that the mortgagor will keep the buildings on the premises insured against loss by fire for the benefit of the mortgagee; that he will assign and deliver the policies to the mortgagee; and that he will reimburse the mortgagee for any premiums paid for insurance made by the mortgagee on the mortgagor's default in so insuring the buildings or in so assigning and delivering the policies," shall be construed as meaning that the mortgagor, his heirs, successors and assigns will, during all the time until the money secured by the mortgage shall be fully paid and satisfied, keep the buildings erected on the premises insured against loss or damage by fire, to an amount to be approved by the mortgagee not exceeding in the aggregate one hundred per centum of their full insurable value and in a company or companies to be approved by the mortgagee, and will assign and deliver the policy or policies of such insurance to the mortgagee, his executors, administrators, successors or assigns, which policy or policies shall have endorsed thereonthe standard New York mortgagee clause in the name of the mortgagee, so and in such manner and form that he and they shall at all time and times, until the full payment of said moneys, have and hold the said policy or policies as a collateral and further security for the payment of said moneys, and in default of so doing, that the mortgagee or his executors, administrators, successors or assigns, may make such insurance from year to year, in an amount in the aggregate not exceeding one hundred per centum of the full insurable value of said buildings erected on the mortgaged premises for the purposes aforesaid, and pay the premium or premiums therefor, and that the mortgagor will pay to the mortgagee, his executors, administrators, successors or assigns, such premium or premiums so paid, with interest from the time of payment, on demand, and that the same shall be deemed to be secured by the mortgage, and shall be collectible thereupon and thereby in like manner as the principal moneys, and that should the mortgagee by reason of such insurance against loss by fire receive any sum or sums of money for damage by fire, and should the mortgagee retain such insurance money instead of paying it over to the mortgagor, the mortgagee's right to retain the same and his duty to apply it in payment of or on account of the sum secured by the mortgage and in satisfaction or reduction of the lien thereof shall be limited and qualified as hereafter in this paragraph provided. Said insurance money so received by the mortgagee shall be held by him as trust funds until paid over or applied as hereinafter provided. If the mortgagor shall notify the mortgagee in writing within thirty days after the fire that the mortgaged premises have been damaged thereby, and shall thereafter make good the damage by means of such repairs, restoration or rebuilding as may be necessary to restore the buildings to their condition prior to the damage, then upon presentation to the mortgagee within three years after the fire of proof that the damage has been fully made good (andif he so demands in writing within thirty days after such presentation of proof, then upon presentation to the mortgagee within thirty days after such demand of proof also of the actual cost of such repairs, restoration and rebuilding and of the reasonable value of any part of the work so performed by the mortgagor) the mortgagee, unless he rejects the proof submitted to him as insufficient, shall pay over to the mortgagor so much of said insurance money theretofore received by the mortgagee as does not exceed the lesser of (1) the reasonable cost of such repairs, restoration and rebuilding or (2) the total amount actually paid therefor by the mortgagor, together with the reasonable value of any part of the work done by him. Such proof shall be deemed sufficient unless, within sixty days after presentation of all such proof to the mortgagee as aforesaid, he shall notify the mortgagor in writing that the roof is rejected. Any excess of said insurance money over the amount so payable to the mortgagor shall be applied in reduction of the principal of the mortgage. Provided, however, that if and so long as there exists any default by the mortgagor in the performance of any of the terms or provisions of the mortgage on his part to be performed the mortgagee shall not be obligated to pay over any of said insurance money received by him. Ifthe mortgagor shall fail to comply with any of the foregoing provisions within the time or times hereinabove limited, or shall fail within sixty days after rejection of the proof so submitted to commence an action against the mortgagee to recover so much of said insurance money as is payable to the mortgagor as hereinabove provided, or if the entire principal of the mortgage shall have become payable by reason of default or maturity, the mortgagee shall apply said insurance money in satisfaction or reduction of the principal of the mortgage; and any excess of said insurance money over the amount required to satisfy the mortgage shall be paid to the mortgagor. Unless the court, in any such action, shall determine that the mortgagee's rejection of the proof submitted by the mortgagor prior to the commencement of the action was unreasonable, the mortgagee may offset the reasonable amount, as determined by the court, of his expense incident to the litigation, and may reimburse himself out of the insurance money for the amount so determined. The term "mortgage," as hereinabove used, shall be deemed to include agreements extending or otherwise in any way modifying the terms or provisions of an existing mortgage. The term "mortgagor," as hereinabove used, shall mean the owner for the time being of the mortgaged fee or thejunior mortgagee actually in possession of the mortgaged property, or the tenant for the time being in possession of the property under a lease which has been mortgaged. The term "mortgagee," as hereinabove used, shall be deemed to include the successors in interest of the mortgagee. In the event that there be more than one mortgage covering the same premises, such covenant must be construed as hereinbefore prescribed in this paragraph, except that the mortgagor, his heirs, successors and assigns, notwithstanding such foregoing provisions, may not be required to provide such insurance, as to all the mortgagees combined, in the preferential order of their priority, for a total amount of more than one hundred percent of the insurable value of the buildings on the premises, and a second or subordinate mortgagee shall be entitled to exercise the rights of a mortgagee with respect to the procurement of such insurance and the holding of the policy or policies thereof as hereinbefore prescribed in this paragraph only when and to the extent that the mortgagor, his heirs, successors or assigns, as the case may be, does or do not furnish satisfactory proof of such maximum insurance for the benefit of such second or subordinate mortgagee and one or more other mortgagees in the preferential order of their priority in a company or companies duly authorized to do business in this state.

The limitations and qualifications hereinabove imposed on the mortgagee's right to retain proceeds of a fire insurance policy shall apply only to mortgages or extensions or other modifications thereof made after the effective date of this act.

(b) A covenant "that the mortgagor will keep the buildings on the premises insured against loss by flood if the premises are located in an area identified by the Secretary of Housing and Urban Development as an area having special flood hazards and in which flood insurance has been made available under the National Flood Insurance Act of nineteen hundred sixty-eight; that he will assign and deliver the policies to the mortgagee; and that he will reimburse the mortgagee for any premiums paid for insurance made by the mortgagee on the mortgagor's default in so insuring the buildings or in so assigning and delivering the policies," shall be construed as meaning that the mortgagor, his heirs, successors and assigns will, during all the time until the money secured by the mortgage shall be fully paid and satisfied, keep the buildings erected on the premises insured against loss or damage by flood provided the premises are located in an area identified by the Secretary of Housing and Urban Development of the United States as an area having special flood hazards and in which flood insurance is available under the National Flood Insurance Act of nineteen hundred sixty-eight, to an amount at least equal to the outstanding principal balance of the money secured by the mortgage or the maximum limit of coverage available with respect to the buildings under said Act, whichever is less, and in a company or companies to be approved by the mortgagee and will assign and deliver the policy or policies of such insurance to the mortgagee, his executors, administrators, successors or assigns, which policy or policies shall have endorsed thereon the standard New York mortgagee clause in the name of the mortgagee, so and in such manner and form that he and they shall at all time and times, until the full payment of said money, have and hold the said policy or policies as a collateral and further security for the payment of said money, and in default of so doing, that the mortgagee or his executors, administrators, successors r assigns may make such insurance from year to year, in the amount as aforesaid, and pay the premium or premiums therefor, and that the mortgagor will pay to the mortgagee, his executors, administrators, successors or assigns, such premium or premiums so paid, with interest from the time of payment, on demand, and that the same shall be deemed to be secured by the mortgage, and shall be collectible thereupon and thereby in like manner as the principal moneys, and that should the mortgagee by reason of such insurance receive any sum or sums of money for damage by flood, the provisions for retention, holding application and payment of said insurance money shall be as setforth in paragraph (a) above with respect to loss by fire. The term "mortgage," as hereinabove used, shall be deemed to include agreements extending or otherwise in any way modifying the terms or provisions of an existing mortgage. The term "mortgagor," as hereinabove used, shall mean the owner for the time being of the mortgaged fee or the junior mortgagee actually in possession of the mortgaged property, or the tenant for the time being in possession of the property under a lease which has been mortgaged. The term "mortgagee," as hereinabove used, shall be deemed to include the successors in interest of the mortgagee. In the event that there be more than one mortgage covering the same premises, such covenant must be construed as hereinbefore prescribed in this paragraph except that the mortgagor, his heirs, successors and assigns, notwithstanding such foregoing provisions, may not be required to provide such insurance, as to all the mortgagees combined, in the preferential order of their priority, for a total amount greater than the outstanding principal balance of the money secured by the mortgage or the maximum limit of coverage available with respect to the premises, whichever is less, and a second or subordinate mortgagee shall be entitled to exercise the rights of a mortgagee with respect to the procurement of such insurance and the holding of the policy or policies thereof as hereinbefore prescribed inthis paragraph only when and to the extent that the mortgagor, his heirs, successors or assigns, as the case may be, does or do not furnish satisfactory proof of such maximum insurance for the benefit of such second or subordinate mortgagee and one or more other mortgagees in the preferential order of their priority in a company or companies duly authorized to do business in this state.

The limitations and qualifications hereinabove imposed on the mortgagee's right to retain proceeds of a flood insurance policy shall apply only to mortgages or extensions or other modifications thereof made after the effective date of this act.

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