Indemnity Insurance

grobsi

I have read the forum regarding reclaiming indemnity insurance and understand that it is problematical.

For example, in my case, I bought my property heavily discounted at £42,750 with a mortgage of £60,000. The value of the property in the survey accepted by the bank was £75,000.

The bank disclosed to me about 2 days before completion that I had to agree to the insurance otherwise they would not provide the mortgage. The choice I faced was to lose the heavily discounted property costing me thousands or accept the insurance. As a result I agreed to the insurance which was added to the mortgage.

I am still going to have a punt at trying to make a claim and I can see that I may have difficulties. I want to ask whether there would ever be an instance where it could be mis-sold.

TrickyDicky101

How did you acquire a mortgage for more than you were paying for the property? This isn't some form of Northern Rock Together mortgage is it?

grobsi

No, it wasn't. This is from 1996.

The value of the house was £75,000 according to the survey. I had received a discount meaning that I was offered the sale at £42,750 so the extra money was to decorate and modernise the house. The decoration and modernisation would have increased the value from £75,000 upwards rather than the sale price. When we came to change the mortgage two years later. The value of the house was put between £95,000 and £110,000.

We had gone for £60,000 as this meant an 80% mortgage to value ratio rather than triggering the 90% figure which I believe applied at the time.

The bank told me that the value of the house was less than the mortgage so we needed an indemnity insurance. It was clear from my conversation with them that they had mistaken the sale price for the value.

stator

What exactly was the indemnity police for? Who did it indemnify and against what?
It's so long ago I doubt you'll have any luck. They probably don't keep records that far back.

kingstreet

Where the loan to value exceeded 75%, some lenders insisted on mortgage indemnity guarantee insurance for their benefit, paid for by the borrower who derived nothing from it.

It was additional security which allowed the lender to sell the property cheaply following repossession and to claim on the indemnity cover. The insurer could use its subrogation rights to pursue the borrower for the sum paid.

If you wanted a high loan to value mortgage upto around 2000, you had little choice but to accept it. It was a perfectly acceptable way for the lender to cut its risk to lend more. Effectively, the Government's HTB - Mortgage Guarantee scheme works in a similar way but on a scheme, rather than individual case basis.

The OP has absolutely no chance of getting this money back. The date and the product in question guarantee that. If the lender wanted the cover, you accepted it or walked away.

grobsi

I was specifically told that the insurance was due to the fact that the value of the house was less than the mortgage amount. As it happens, which is the reason for the activity at this late stage, I have now located most of the documentation which is relevant although there is no listing of reasons for the policy. I had originally assumed that I had destroyed it.

Although I appreciate that I could have walked away, the prospect of losing my home and the value of the discount which was 43% of the house value meant that I really could not walk away from the deal. The bank at the time had the information about the value in June 1995 but waited until 2 days before the completion date in February 1996 to drop it on my toes. Hence, they lost my custom at the first available opportunity.

I'll still give it a go, if only to have the bank expend more time and effort on it.

magpiecottage

grobsi wrote: »

I was specifically told that the insurance was due to the fact that the value of the house was less than the mortgage amount.

It was the lower of the purchase price and the loan value. From what you say, this seems to have been a right to buy loan. They were generally would offer up to 100% of the purchase price but you wanted nearly half as much again.

That means, from a mortgage underwriter's point of view, you had no stake in the risk. You had put none of your own money in and were borrowing significantly more than you paid for it.

As it happens, which is the reason for the activity at this late stage, I have now located most of the documentation which is relevant although there is no listing of reasons for the policy. I had originally assumed that I had destroyed it.

This is significant because you had the information in 1996, even if you could not find it. If you think you had cause for complaint, you could therefore have complained at that time.

The rules FOS works to allow a business to object to a complaint being considered if it is more than six years since the events giving rise to a complaint and also more than three years since you ought reasonably to have been aware that you had cause for complaint.

Since that applies here, the lender seems to have the right to impose that limit. FOS can overrule it in exceptional circumstances but "I lost the paperwork" does not usually count.

The bank at the time had the information about the value in June 1995 but waited until 2 days before the completion date in February 1996 to drop it on my toes.

That seems very unlikely. I have never seen a mortgage offer - going back to the 1980s that did not specify that a mortgage indemnity guarantee would apply.

Hence, they lost my custom at the first available opportunity.

That would probably be seen as further evidence that you knew you had grounds for complaint many years ago.

I'll still give it a go, if only to have the bank expend more time and effort on it.

Simply complaining to cause the bank a loss risks it being dismissed out of hand as frivolous and vexatious.

However, as well as asking FOS to do that, or that it dismisses the complaint as made too late, the lender can argue that it was a matter of legitimate commercial judgment that it should insist on the loan being insured against default and therefore the matter falls out of FOS jurisdiction anyway.