According to my Oxford dictionary, subrogation means "the substitution of one party for another as creditor, with the transfer of rights and duties."(posted 8536 days ago)Based on that, I don't see how the rights of subrogation can pass to the lender, the lender already has rights as creditor.
Once the insurance company have paid the lender, the lender passes its rights as creditor to the insurance company, so the insurance company is now creditor and can make their claim against the borrower.
The lender in effect is out of the equation as they have been compensated for their losses.
If the lender is acting on behalf of the insurance company (I don't see any point in them doing that), then it should be clearly stated. If the lender appears to be claiming for themselves and have also claimed from the insurance company, then they are claiming money under false pretences.
If the MIG contains clauses about subrogation, the mortgage contract should also. Because otherwise there is a missing link.
The borrower has a contract with the lender. The lender has a contract with the insurance company. This says that the insurance company can become creditor if rights are passed on by the lender.
Therefore the lender must tell the borrower of the contract between themselves and the insurance company and this must be in writing within the mortgage contract. Otherwise the borrower must be a party to the MIG.
If there is no wording within the mortgage contract, then any alleged contract between borrower and insurance company after subrogation can be disputed as the borrower has entered into a contract without prior knowledge. Without a contract there is no debt.
Which brings me to my next question. At what point, whether by a mortgage account paid up or by repossession, does a mortgage contract become fulfilled and no longer valid because the debt is repaid?
If the lender decides to repossess a property under the terms of the mortgage agreement, then the agreement is then surely finished, because the final act is taking back the security. If the lender does not ask for a money judgement at the time, then that is their problem, not the borrowers. This means that any shortfall is not a claim under the mortgage contract and any debt owing is a simple contract and subject to a 6 year limitation. If the lender claims the shortfall/arrears/whatever whilst claiming repossession of the property under the terms of the mortgage contract, then there is a 12 year limitation because the money is being claimed under that contract.
Whether or not a money order is made, if the lender has been compensated then the mortgage has been redeemed and the contract no longer has any effect.
If the lender passes rights as creditor to the insurance company under its own contract with the insurance company, then it would be a simple debt because there is no mortgage contract.
I'll finish now before I confuse myself and everyone further!
But I think that the question of when is a mortgage contract concluded is one that should be investigated.
Pendle