Legal Question in Real Estate Law in California

Re: Home Equity Loan

I haven't read the contract between the lender and you, but if it's typical, it requires the borrower to insure the collateral (your house) for an amount sufficient to pay off the lender. Since your line of credit is probably in second (or third?) position, the policy limits would have to be high enough to pay the senior loans too.

Next, I'm not entirely sure what your 'closing' amounted to.....normally, a loan closing in California is handled through escrow, at the close of which money is dispersed to, or to the order of, the borrower. The escrow generally cannot close unless and until the borrower has met all the lender's conditions, including insurance. Evidently, the closing in your situation was not a true closing, or had some unconventional aspects.

So, I don't think the lender is trying to back out; more likely, you haven't met a pre-condition of being funded, i.e. you are under-insured.

The solution is more insurance. Somebody out there is probably prepared to issue a policy with higher limits. Did the lender obtain an appraisal before approving your loan? That might help convince an insurer of the true value of your property. Talk to a couple of agents. Also, ask the lender for their suggestions. Many lenders have insurers they use to cover properties where the owners have allowed coverage to lapse. Their policies tend to be expensive, but if you are in a hurry to obtain the funds, use of the lender's 'insurer of last resort' might be a quick short-term solution for you.