I have sseen this question asked before but no answers were posted. Does the MIG which should be claimed from the insurers, subject to the same 12 period as the actual mortgage? Surely it should be 6 as with any other debt, therefore the lender who 'inherits the subrogated right' cannot chase for this if it were requested that it went back to the insurer. That is saying that it was after 6 years.

-- (drobbrown@onetel.net.uk), August 02, 2000

Answers

As far as I know, this part of the claim is subject to the six year rule. Others may know differently though, so hopefully they will correct me if I am wrong.

In my opinion, it is worth fighting lenders over the six year, 12 year rule on the rest of a shortfall claim too. See the newsletter library for details on this. "Worth fighting" means different things to different people as well. It may be that you are not in a position to take any risks over the outcome of a fight with a lender.

Lee

-- Lee (repossession@bigfoot.com), August 02, 2000.

Has anybody, especially Lee, got any more up to date thoughts on this question. I don't suppose I would be lucky enough to find that it is definately 6 years, that would be far too good!!!

Any comments PLEASE

-- Matt (mattyc@ntlworld.com), December 04, 2000.

A thought: (again based on written info from solictors/lenders and my experience of this area). The MIG Rights of Sub pass to the lender (NOT the insurance co, who basically factorise the debt back to the Lender) under clause XYZ. The MIG pays the Lender but under the terms of the MIG the Lender is obliged to chase the debt and pass any recoveries onto the Insurance Co at an agreed % rate. The Lender has 6 years (based on my understanding of the Law) to chase you under the Rights of Sub it acquires....BUT it has 12 concurrent years to chase you as the provider of the Mortgage. The problem is, I think that the Rights of Sub and the Lenders rights are interchangeable (only sight of a MIG will prove me right here) so that either/or can chase you for the full 12 years. It may be why after so many years, people are hearing from the Insurance Co - i.e. the Lender has reverted the debt and passed the remaining time back to the Insurance Co. This action may stem from accounting necessity, as some may need write-off's for tax purposes (such as centralised lenders who came unstuck (sob sob..NOT). What we need is proof that they are indeed up to dirty tricks in this way. The write-off's are detailed as Notes to the Accounts (Financial Accounts) but will not be broken down by debtor. Shame that..as a little cross-casting to the Insurance Co accounts would rather prove my theory wouldn't it?

-- Too scared to say (iwasduped@yahoo.com), December 04, 2000.

It all seems to go back to the same point. The MIG Policy is the docment that contains the text giving the right to chase for the shortfall and, therefore, is a document that YOU MUST be allowed to see if the case goes to court. Without this I have not seen anything else that gives the insurance company the right to chase the borrower for the shortfall.

If I ever hear again from the lot after me I will, very carefully, compose a paragraph that, hopefully, gives them two options:

1) Send me a copy of the MIG policy 2) Write off the debt

-- Matt (mattyc@ntlworld.com), December 05, 2000.

According to my Oxford dictionary, subrogation means "the substitution of one party for another as creditor, with the transfer of rights and duties".

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

-- pendle (pendle@amun-ra.demon.co.uk), December 05, 2000.

According to my Oxford dictionary, subrogation means "the substitution of one party for another as creditor, with the transfer of rights and duties."

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

-- pendle (pendle@amun-ra.demon.co.uk), December 05, 2000.

APOLOGIES FOR SENDING THIS TWICE - I HAD AN ERROR MESSAGE WHEN I SUBMITTED THE POSTING AND DIDN'T THINK IT HAD GONE THROUGH.

PENDLE

-- pendle (pendle@amun-ra.demon.co.uk), December 05, 2000.

To pick up on Pendle's points:

Once Rights of Sub have been exercised, the Lender is not out of the equation because the debt is assigned. Businesses factor debts for cashflow purposes;the Lender does not get 100% of the shortfall from the Insurance Co, it gets a proportion, much as a Factor will only pay say 80p on the pound for an invoice. Any debt, however, cannot be written off if it is subject to a Rights of Sub clause, or a similar legal clause, i.e. someone else has an interest in it or the goods or services remain the property of the lender/seller until FULLY paid for and title is retained until the goods or services are paid for. A typical finance agreement on a new car will state that the title of the car doesn't pass to you until you have coughed up the last penny on the last payment. So....where the Lender chases Mrs X for years, even though they have been paid out by the Insurance Co, it is because neither party can have a write-off until the term of the Rights of Sub has expired. Then and only then will the Lender back off, as it becomes the Insurance Co's problem and the Lender can legitimately include the difference between their pay out and the shortfall as a bad debt in that years accounts. It is in their interests to inflate the shortfall to get a bigger deduction down the accounting line. It would also explain the reckless disregard for the obscenely low prices repo properties are sold for (they don't have to care do they?)

I quite agree that the Mortgage Contract should detail the MIG and a copy of the legal clause and the Borrower should sign that s/he is agreeing to it. None of us knew what it was and that we could be chased forever even if this so-called policy we paid for but weren't allegedly party to paid out!

As you can always assign a debt to a third party, the debtor has no initial rights in that regard. What is moot, is whether the MIG creates a triangulation contract between the borrower and the Lender and the Insurance Co. By implication the Borrower would then, as Pendle says, have to be party to that MIG. Since the Lender's mantra is that we are not, the MIG can only be a contract between the Lender and the Insurance Co until the debt is satisfied. Once the payout has occurred, the Lender or the Insurance Co has the balance of six years from to chase. I firmly believe that the shortfall "debt" after a pay out can only fall to be treated as one due under a simple contract [assigned], and the six year rule MUST apply.

I am not too clear about the money order situation and the bearing it has, but I think you are onto something. However, the repossession of a property does not terminate the mortgage contract; it just means all amounts forwarded under its Terms and Conditions immediately become due and payable. I think the contract is legally terminated the second the Rights of Sub are exercised and a payout occurs and that is fly in the Lenders ointment because the older ones never intended for that to happen. Just my opinion but it follows your logic Pendle at least in part!

-- Too scared to say (iwasduped@yahoo.com), December 06, 2000.

I think I follow you! Basically what is being said, regardless of the question of termination of the contract, is that there must be a clause in the MIG policy that allows the right of subrogation and, presumably, this will show that it is no longer a debt under speciality but a simple debt with a period of 6 years to recover.

This being the case I would think that unless the insurance company can prove, documentation required not a note in a letter, that: 1) There is a contract between me and them 2) The mortgage contract terms are those that the rights of sub allow them

then I can base my case on the fact that it is a simple debt and therefore not recoverable after 6 years - mine is around 10 years ago.

The money judgement part is a strong case for us but, as has bee shown previously, they are allowed to go to court at *any time* and obtain one if they did not originally. They would have to allow you to defend this hearing so my next question is, how would you defend it? Would the fact that 10 years has passed be case enough or would other factors be required. I understand that over 200 'debts' have been written off using this arguement but I am confused by it as the insurance company has said:

'they do NOT need one'

if not, why not. Does the money judgement only apply to lenders and when the RoS are implemented, if it is not required, does this show that it is now separated from the mortgage and therefore a simple debt with 6 years to recover? Do you follow my arguement?

I have e-mailed one of these on-line legal sites to ask about 6/12 years under RoS and, according to their automatic response, will have an answer today. Watch this space!!

-- Matt (mattyc@ntlworld.com), December 06, 2000.

A few extract below from J Roberts v National Guardian Mortgage Corperation 1993. I a not sure about the relevance of this as much of it goes over my head but some of you seem to have a very good understanding of this sort of thing.

Any thoughts? The full text is on http://www.law.cam.ac.uk/restitution/archive/englcases/roberts.htm

The essence of the argument that is put forward for Mr Roberts (the appellant) is founded on a passage in the speech of Lord Diplock in the case of Orakpo v. Manson Investments Ltd. [1978] AC 95. That was a case which was concerned with the Moneylenders Acts (now, happily, no longer with us), and it is important to bear in mind it was particularly involved with s 6 of the Moneylenders Act 1927, which provided that: "No contract for the repayment by a borrower of money lent to him by a moneylender, and no security given by the borrower in respect of any such contract, shall be enforceable unless a note or memorandum in writing of the contract be made. The note or memorandum aforesaid shall contain all the terms of the contract". The passage in Lord Diplock's speech which is particularly relied on is at page 105 D to F. He said this: "In the first place the origin of the right of subrogation is the contract between the borrower and the moneylender for the loan of money by the moneylender to the borrower. The contract either will or will not incorporate a term that the moneys lent shall be applied in discharging a security on the property of the borrower in favour of a third party. If it does, the term that the moneys shall be so applied must be included in the note or memorandum under section 6. If it does not and there is no contractual obligation upon the borrower to apply the moneys in this way (as was held to be the case in Hanyet Securities Ltd v. Mallet [1968] 1 WLR 1265), the expectation of the parties that the money will in fact be used by the borrower for his purposes does not give rise to any right of subrogation in the moneylender even if the money is so applied". "Subrogation may result from agreement, or it may arise by operation of law in a number of different situations. In some circumstances the debtor may know nothing whatever about the transactions which had caused a third party to become subrogated to the rights of his original creditor". Some rights by subrogation are contractual in their origin as in the case of contracts of insurance. Others, such as the right of an innocent lender to recover from a company moneys borrowed ultra vires to the extent these have been expended on discharging the company's lawful debts are in no way based on contract and appear to defeat classification except as an empirical remedy to prevent a particular kind of unjust enrichment".

-- Matt (mattyc@ntlworld.com), December 06, 2000.

Looking at Den Danske Bank A/S and others v Skipton Building Society and others 19 Dec 1997) it seems that on a commercial mortgage the indemnity policy is a 'pool insurance' taken out by the lender. Would this have any effect on our situations if the same were true for residential mortgages as there is not a policy for each separate mortgage?

-- Matt (Mattyc@ntlworld.com), December 07, 2000.

Just got this from the Law Commision. I will have a look at the cases later to see what they are all about.

"Sorry for the delay in responding to your enquiry. If the debt does become a simple debt then it will be subject to the 6 year limitation period, as opposed to the 12 year time limit for claims on a specialty. The issue is really whether, when subrogation rights are exercised, the claim does change from a claim on a specialty to a claim on a debt. A few interesting cases to look at, and which might provide some assistance, are Burns v Shuttlehurst [1999] 2 All ER 27 and Norman v Ali [2000] PIQR P73. These concern personal injuries but the question is a vaguely similar one revolving around the difference between a claim for damages and an indemnity. Whether the same rules apply to subrogation however depends on the exact effect of exercising these rights, and to answer that I would advise you to look at textbooks on insurance law.

I hope this is helpful. Although the question is very interesting I can't spend any time researching it and so I can only give you my own personal reactions and can't give you any definitive answer as the role of the Law Commission is to advise Parliament not individuals. I hope however that this helps you on your way."

-- Matt (Mattyc@ntlworld.com), December 20, 2000.

Have recently sought Barristor,s opinion on this subrogation of M.I.G he states that if a shortfall claim was made and the case went to court for Money Judgement,the Lender can add this back on,has he is is subrogated and therefore collecting it on behalf of the Lender.

So the orginal claim is increased to allow the LENDER to collect and repay the Insurance Company.

comments on this would be interesting!

Charles Twford

-- charles twford (twford@lineone.net), February 07, 2001.

Should have said collecting on behalf of the insurer!

Charle Twford

-- charles twford (twford@lineone.net), February 08, 2001.