can anybody in plain english, explain right of subrogation, and if it applies, if for example, there is no mention on the mortage deed, or terms and conditions of the mortage. i am refering to a mig of course

-- k kennerley (ariespc@lineone.net), February 08, 2003

Answers

MIG policies are all subject to this wheeze as I understand it - it is a matter of statute, not of contract - in other words, it doesn't have to say anything about it on the document itself because it's already been set as a general rule in a court (I think the ruling, which I'm afraid I can't remember the reference for, was based on the fact that a MIG, despite its name, is not a guarantee, but an insurance.) What it means is that once the policy has paid out (to the lender) the insurance company that made the payment endows the recipient of the payment (ie your friendly mortgage company) with the right to chase you for the money with which to reimburse the insurance company. Got that? So you have paid for insurance out of your pocket so the mortgage company shouldn't end up losing out, and if a claim is made on that insurance, it is your money that pays for that too! Recently there have been rumours that certain lenders have been claiming back money using their right of subrogation under MIG policies, but then not paying it all back to the insurers as they should.

-- Melody (mbc109@york.ac.uk), February 10, 2003.

The right of subrogation gives the insurer the same rights as the lender to recuperate their money. If, for example, the insurer has paid out money under a MIG to the lender to cover a mortgage shortfall, and the lender has 12 years to recover a shortfall then so too does the insurer. If the lender only has 5 years left to recover a shortfall then again so does the insurer. If a borrower has acknowledged the shortfall to the lender and the 12 year limitation has restarted then it restarts for the insurer too etc. etc. As Melody has said it is a question of law, not whether it is mentioned in the terms & conditions of you mortgage. The legal argument seems to be based on s5 of the Mercantile Law Amendment Act 1865. Two cases also back this view up 'Romaina v Scuba TV 1995' and 'Orakpo v mansion Investments 1978'. Not all financial advisers appear, however, to support this view, although personally I think the subrogation argument is pretty strong. See the posting 'On the MIG question'. I am not a legal professional though, so please, as always, check this out with one. I hope this makes it clearer.

Mark.

-- M Amos (idgroms@hotmail.com), February 10, 2003.