thought I'd post this from the CML site. It clears up the indemnity question and confirms Trust Deed Assistant's suggestion that the insurer would 1-Pay the lender on claiming in respect of a shortfall from sale proceeds and then 2- Seek payment (from the borrower)of monies claimed by the lender;
What happens when a lender makes a mortgage indemnity claim?
A lender can make a claim after it exercises its power of sale (ie when the lender has actually sold the repossessed property) and the price obtained for your property is less than your outstanding mortgage. The difference between the amount the property was sold for and the amount of your outstanding mortgage is called a shortfall. When you take out a mortgage you make a personal promise to repay all of the money you owe under the mortgage. This promise still applies whether your lender has mortgage indemnity arrangements with an insurer or not. The fact that the lender has made a mortgage indemnity claim does not mean that you do not have to repay the shortfall.

In most cases, the mortgage indemnity will cover your lender only for part of its loss and, in addition, once an insurer has paid a mortgage indemnity claim, it gains the right of subrogation.

What is subrogation?

Subrogation means that the insurer can reclaim from you any money it has paid to your lender under a mortgage indemnity claim. Insurers always have the right to recover money they pay out under a claim where the loss has been caused by a "third party". In the case of mortgage indemnity, you, as the borrower, are the "third party" whose default led to your lender making the claim.

Either your lender or its insurer can take legal action against you to recover the shortfall if you do not repay it voluntarily, although any action would be taken in the name of the lender. In most cases, therefore, it is your lender who will contact you to recover the shortfall on behalf of itself and its insurer. This does not mean that the lender is claiming the debt twice; any money paid by the insurer which is collected from you will be passed back to the insurer. In some cases, however, the insurer may contact you direct.

Hi Pamjo.

Luckily one of my colleagues holds the mortgage broker qualifications so knew a fair bit about mortgage indemnity guarantees (MIG policies) which helped me to answer your question. We'd also double checked on the CML site and I think read the same page that you quote from.

MIG policies are almost always for the benefit of lenders rather than borrowers. It's usually the borrower that is asked to pay for such a policy though, which may be a requirement of more risky mortgages (high loan to value loans for example).

I struggled when you advised checking my policy earlier in the thread. I never paid for or discussed a policy for the lender's protection. At the time of taking the mortgage out, before current restricted lending, we only borrowed 75% LTV. It is a result of currency movement that we now have 140+ LTV. I can only assume, the lenders viewed it as a particularly risky mortgage and chose to have an indemnity policy in place. If as seems very likely now, reposession goes ahead, the shortfall will be substantial. Can monies sought by an insurer be included in a TD/DAS or Bankruptcy following a sale and actual quantified loss/claim?

Hi Pamjo.

That would simply be an unsecured debt the same as any other.

The other thing to point out is that you don't necessarily have to have the precise loss quantified at the point of becoming bankrupt or signing a trust deed.

By notifying the relevant people in advance that a reposession process is underway the potential/likely debt will be included even though the specific amount is not quantified at that point.

Thanks for that-Does the trustee include the Insurers claim against the borrower for a potential shortfall. I'm confused re. the timing and how 'potential' debts are included

Hi Pamjo.

Do you have any intention of making yourself bankrupt prior to repossession and quantification of any loss?

If you started the trust deed or bankruptcy process you'd simply need to tell the Trustee from the start that repossession proceedings are underway and that a new debt of some sort (mortgage shortfall or debt to MIG insurer) is likely to be created.

Hi - Yes and no. It is not 1st choice to be in the situation but if it is likely, I'm trying to be as informed as possible in advance. If there is any merit in instigating proceedings personally rather than wait for someone else to apply to bankrupt me then I would. Still educating myself in advance.

Yesterday, 19th November received Sheriff Warrant for Citation re. -ve LTV property being repossessed. Confused re. content and will take advice. 'copy of writ and form 11c on a period of notice of 21 days, and ordains them (us) to answer at sheriff court 20th January at 10am.

Anyone able to comment re. what happens 21 days from the notice? Should we undertake to return the keys before court date as we are unable to pay/defend against repossession or are we required to attend court?

Hello Pamjo.

It's really a matter for you to decide whether to hand possession of your property back to the lender. Is this something that you would prefer to do?

HI TDA

Confusion reigns really. I don't know the pros/cons of either drawing a line under this as we know we cannot make good any shortfall if the loan is converted at current rates, our £63000 mortgage liability will become £118000. The property on a good day will be sold for approx.£75000 unless auctioned when we expect it would achieve less.

Prime consideration is really our tenant and what timescale we need to ask him to find alternative accomodation-is it 21 days from the notice or on the court date?

Mark
You advised another member on another thread that handing the keys back would need a waiver of some kind to bring about repossession without court proceedings. Having had a 21 days notice (of what I'm not sure) and a court date set for Jan. are we too late to have this option?
A previous advisor said we must hand back the keys prior to any trust deed or seequestration beginning whether we/I sought it or a.n. other applied for my/our bankruptcy. Is this accurate?

Hi Pamjo.

I'm not sure about the timings relevant for your tenant I'm afraid; it's a little out of my area. Hopefully someone else can advise.

I'm not sure why you would have been advised that your property should be out of your possession before going ahead with sequestration or a trust deed. If there's a good reason for that advice hopefully one of the others here will pick up on it.

There's no reason that you would have to give up your property before entering sequestration or a trust deed, whether by your own application or not. Nor should there be any impediment to you doing so if you so wish - though given that the lender has already started proceedings I imagine they will carry it through and get their decree regardless.

TDA and Kevin,

Thanks for those inputs. From your replies, I don't need to rush to apply for sequestration on the basis of this notice?

I will find out what dates are implied for my tenant and prioritise that for now.

Can the lender apply to sequestrate before a sale is completed?

Have they suggested that they'll do that Pamjo?