Sec.32-13-21. Protection of mortgage security

(a) Annual inspection of property by mortgagee. So long as the mortgage is an insured mortgage, the mortgagee shall ascertain the general physical condition of the mortgaged property in each calendar year commencing with the calendar year following completion of the project. The mortgagee shall furnish the commission and the mortgagor with a copy of its inspection report, which shall contain the mortgagee's recommendations for any necessary corrective action.

(b) Restoration of property by mortgagee. If, at any time, it be determined by the mortgagee that, in addition to ordinary wear and tear, the mortgaged property is being subjected to permanent or substantial injury, through unreasonable use, abuse or neglect, the mortgagee shall, unless adequate provision satisfactory to a prudent lender is made for the prompt restoration of the mortgaged property, forthwith take such action as may be available to it under the mortgage and appropriate to the particular case, for the protection and preservation of the mortgaged property and the income therefrom.

(c) Insurance of property against fire and hazard. The mortgaged premises shall at all times be insured against fire and other hazards as provided in the mortgage. The mortgagee shall provide such coverage in the event the mortgagor fails to do so. If the mortgagee fails to pay any premiums necessary to keep the mortgaged premises so insured, the contract of insurance may be terminated at the election of the commission.

(d) Effect of failure to provide adequate fire and hazard insurance. If at the time claim is filed for the payment of insurance the property has been damaged by fire or other hazards and the loss has been sustained by reason of failure to keep the property insured as provided in the mortgage, the amount of such loss may be deducted from the amount of the insurance settlement.

(e) Application of fire and hazard insurance proceeds. (1) If a loss has occurred to the mortgaged property under any policy of fire or other hazard insurance and the mortgagee has received the proceeds therefrom, it shall not exercise its option under the mortgage to use the proceeds of such insurance for the repairing, replacing or rebuilding of the premises, or apply them to the mortgage indebtedness, without the prior written approval of the commission, except for emergency repairs not to exceed the sum of five thousand dollars or five per cent of the insurance in force whichever may be less. (2) If the proceeds are applied to the mortgage with such prior written approval and result in the payment in full of the entire mortgage indebtedness, the contract of mortgage insurance made with the commission shall thereupon terminate. (3) If the commission fails to give its approval to the use or application of such funds for either of said purposes within thirty days after written request by the mortgagee, the mortgagee may use or apply such funds for any of the purposes specified in the mortgage without the approval of the commission.

(Effective August 20, 1963)