Sec.32-13-44. Inspections by secured party. Care and insuring of property against damage

(a) So long as the loan for machinery and equipment is an insured loan, the secured party shall ascertain the general physical condition of the security in each calendar year commencing with the calendar year following date of the note. The secured party shall furnish the commission and the debtor with a copy of its inspection report, which shall contain the secured party's recommendations for any necessary corrective action.

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

(c) The machinery and equipment shall at all times be insured against fire and other hazards as provided in the security agreement. The secured party shall provide coverage if the debtor fails to do so. If the secured party fails to pay any premiums necessary to keep the security so insured, the contract of insurance may be terminated at the election of the commission.

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

(e) If a loss has occurred to machinery and equipment under any policy of fire or other hazard insurance, and the debtor or secured party has received the proceeds therefrom, they shall be applied to the indebtedness on such machinery and equipment unless the commission shall approve the application of such proceeds for the purpose of repairing or rebuilding such machinery and equipment. If such proceeds are applied to the indebtedness and result in payment in full thereof, the contract of insurance made with the commission shall terminate.

(Effective November 26, 1968)