In the event of a total loss, who is paid first according to a standard mortgage clause?

In the context of a total loss in a property insurance claim, the mortgage clause is designed to protect the financial interests of the lienholder, which is typically the lender or bank that holds the mortgage on the property. According to the standard mortgage clause, when a total loss occurs, the first party to be compensated is the lienholder. This means that any insurance payout will primarily go towards satisfying the mortgage debt before any funds are distributed to the insured.

The rationale for this is that the lienholder has a vested interest in the property as collateral for the loan. If the property is declared a total loss, the lienholder needs to ensure that their financial investment is recouped to some extent. Once the lienholder's claim is addressed, any remaining funds would then be available for the insured. This prioritization is crucial in maintaining the integrity of lending practices and ensuring that lenders are not left with potential losses due to property damage.