Arizona Real Estate License Practice Exam

In a typical homeowner's insurance scenario, the lender is often prioritized for payment in the event of a total loss of property. This is because most homeowners have a mortgage, and the lender holds a security interest in the property until the mortgage is fully paid off.

When a claim is made for a total loss, the insurance payout is intended to cover the outstanding mortgage balance to protect the lender's financial interest. This ensures that the lender is compensated before any remaining funds are distributed to the homeowner or other parties involved.

While homeowners may also receive compensation, especially for personal property and any additional living expenses, the lender's claim takes precedence to mitigate the risk of loss due to default on the mortgage. Therefore, in a scenario where the property is entirely lost, the lender is likely to be paid first to ensure their investment is secured.