Insurance Loss proceeds can be some of the hardest to get reimbursed from your lender. I have seen loan documents that were written so that the investor had no possible way to ever access insurance funds - but they still had to pay to repair the property.
Here is how to tell if you are at risk you may not have been aware of.
1. Check your insurance policy(ies). Your lender will be named as first loss payee. This is standard. If they are not, check your loan agreement because it may require that you send all insurance funds to your lender within a certain amount of time. When a claim is filed, all insurance proceeds are paid to the loss payee named in the policy. Your lender will have control of funds. Think they will use that money to have the property repaired? Think again.
2. Know how to read and interpret your loan agreement. The best tip - refer back to definitions. Capitalized words will be defined.
3. The loan agreement will outline what has to be done for you to be able to possibly receive reimbursement. Know what these are and how they affect you.
Now I used to work as the Lender on some of the most highly structured, large balance CRE loans in the nation - and I remember one loan document that required the repair process to have begun within 10 days of the loss and repairs had to be fully completed one year prior to the maturity date. They were already 14 months away from maturity on a 6 month process - they are never going to get access to those funds before the loan is repaid.
Know your risks and parameters.