Residual Value Insurance (RVI)
Residual Value Insurance (RVI) policies guard against the unexpected decline in value of single tenant real estate assets. Owners use the proceeds to pay the unamortized amount of a long dated loan that is due at maturity. The policy is paid for by the borrower for the benefit of the lender, as a single premium at closing equal to 5%-10% of the policy coverage. CFC insures between 20%-50% of the property's dark value which allows for the lender to extend additional first mortgage credit and for the borrower to provide less equity.
Condemnation Insurance (eminent domain)
In every case where eminent domain is exercised, the condemning authority must pay fair compensation to the owner of the property to offset the value of the property taken. The insurance policy is written for the entire term of the real estate loan and is for the benefit of the lender only. In return, the insurer takes over the lender’s position as first mortgagee and all rights of recovery associated with it. The lender is made whole without the time and expense of foreclosing or litigating over the condemnation award.
Catastrophic Casualty (property)
To protect against financial loss caused by major physical damage.
Many triple-net leases also include a tenant right to terminate in the event the building is substantially destroyed by fire or other perils. The casualty insurance policy addresses tenant termination just like it does for condemnation. If the tenant terminates, the policy pays the lender the unamortized balance of the loan and the insurer takes over the lender’s first mortgage position.