12-39.If a fire completely destroys a residence,the lender has the right to require that the proceeds from insurance be applied to paying off the note rather than rebuilding the property.The event is termed:

Question

Quizplus · Accepted Answer

The event described in the question is an involuntary conversion, which refers to the loss of property due to reasons beyond the control of the owner (such as fire or natural disaster). In such cases, the lender may require that the insurance proceeds be applied to the outstanding mortgage balance instead of being used for rebuilding the property. This is known as the lender's right of election. The other options listed (substitionary conversion, declaration conversion, and voluntary conversion) do not accurately describe this scenario.

12-39If a Fire Completely Destroys a Residence,the Lender Has the Right