Due to the controversy regarding the MIG question I recently asked a debt adviser about the problem (Simon Wiggins) on www.debtquestions.com. The following is my question to him, followed by his answer. The site can also send you some useful information for shortfall victims. Or I can forward it to you if you wish.

MIG - M Amos 2002-11-17 02:45:46 Simon,there seems to be a certain amount of controversy on the Home Repo Web Site Forum re the question of MIGS. I see you posted earlier (2002-09-08 12:18:08)that you believed the MIG insurance company has 6 years in which they can pursue a mortgage shortfall. However, I have been told by a NACAB solicitor that the insurer has 12 years, he gave the Mercantile Amendment Act 1865 as the reason, and said the Bristol & West v Bartlett case defined the start date i.e. the 2nd or 3rd missed mortgage payment (subject to acknowledgements/MJOs). Furthermore, a lady posted a message on the repo site saying that in her case a judge told her the insurers had 12 years too. What is your current position on this? Thanks in advance. Mark.

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Re: MIG - Simon Wiggins 2002-11-17 04:18:51 The case at the Court of appeal on which judgement was given on 31.7.02 did not cover every debt or all aspects of debt limitation. It did cover the mortgage element of the a shortfall debt and the interest and other charges. It only covered certain areas and the rest are still open to debate until a case defines what is actually the case. What the case said was that on the mortgage debt itself they have twelve years from default but on the interest and other charges 6 years applies. I would not want to say whether or not a soliciters opinion is valid or not and he is of course entitled to his posistion but it is just an opinion as in mine. THe issue of MIGs is wholly different as they are a debt not charged on land as a mortage is with the charge on the property and registration at the land registry. The case hinted and it is not binding as yet that on all other non land related debts the period is 6 years. As far as I am awaere this has yet to have a binding judgement I know of one court district where a claim has been thrown out at Circuit Judge level on the basis it was statute barred and in another the obospite has been the case. The insuer in the first instance did not choose to appeal I suspect for the reason that the outcome of the case would become binding and it is far from certain that it would go their way. It is basically a simple insuarnce contrcat which benefits the lender by is paid by the borrower which if a certain sitaution arises they have to pay out. It is not a land charged debt and is therefore an ordinary debt as given in "re Pasco 1945". If this is the case then the majority of the current thinking based on the hints from the case mentioned is that 6 years applies. Solicitors make just as many errors as advisers nad everyone else and their opinions are not gospel. Only time will tell whne we get a binding case who is correct. I am sorry I can not be any more helpfull to you in this matter because the Courts and advisers alike have mixed opinions on this and there is not a clear cut binding answer nor will there be until a case goes the wrong way for a debtor who is legally aidable and wishes to take the matter further which is again a whole other other problem. ---------------------------

Looks like everything is as clear as mud, just like the limitation question was before the Bartlett case. Any comments?

-- M Amos (idgroms@hotmail.com), November 18, 2002

Answers

I now have a response from the solicitor to Simon Wiggin's message on MIGS above:

'I still think that the real issue is subrogation - I agree that the CA didn't deal with MIGs - but the court defined the limitation periods for lenders and, assuming the subrogation point is correct, the insurer inherits all the rights of the lender - the same limitation period and cause of action therefore apply to both of them. I don't see that there is a contract between the borrower and the insurer - the contract is between the lender and the insurer - the lender pays the premium and recovers it (in advance) from the borrower. There cannot, therefore, be an action in simple contract as there is no contract!! Without subrogation, I cannot see what right of action the insurer has against the borrower. I will see what authorities I can find on subrogation - although the words of s5 of the Mercantile Law Amendment Act 1865 seem to speak for themselves.. "Every person who, being a surety for the debt or duty of another (this is surely the position of the insurer)...shall be entitled to stand in the place of the creditor and use all the remedies...in order to obtain from the principal debtor...indemnification for the advances made and the loss sustained by the person who shall have so paid such debt (i.e. the insurer that has paid out under the MIG) or performed such duty. Everyone is, of course entitled to their opinion - however, no legal arguments have been put forward as to why the above is not true. Mr Wiggins says that MIGs are wholly different as they are not debts charged on land - they are however, in effect, surety for debts that are secured on land - hence they get the rights of the secured lender under subrogation. I cannot identify anywhere that the court 'hinted' at anything to do with MIGs. It is certainly not the case that all non- land debts are limited to 6 years - what about specialties, among others? No details of the cases he mentions are given I do not understand the reference to Re Pascoe (1944) All ER 593) - this was an insolvency case that held that a criminal fine was a debt (since reversed for bankruptcy by legislation, but still valid as far as Admin Orders and fines are concerned). The only other possible argument that a MIG debt is subject to a six-year limitation period is that it is money recoverable under statute (LA s9,) but I don't think this applies. The debt itself is not recoverable under the Mercantile Law Amendment Act 1865 - the Act does not create the debt - only gives the right to sue while standing in the shoes of the lender.'

The solicitor went on to say that he would be more convinced if Mr Wiggins would comment on subrogation, give details of the cases he mentioned and explain what he meant by the 'hints' given by the CA.

Mr Wiggins replied stating:

"Unfortunately this issue is up for debate and at present it is only peoples personal opinions so this varies from adviser to adviser as you will appreciate." He also said " my forum is not the appropriate site to debate these issues as it is simply a free facility to answer people’s basic debt problems and can not possibly go into the legal arguments you mention. It would takes days of research to look up all the cases needed to answer you query and I simply do not have the time to do so at present I’m afraid." (He runs the site himself for free) My line was based on work a few years ago in several high profile cases so the solicitor you mention may be more up to date.

Since this I've received more information from the solicitor:

A case that I have come across recently may shed some light. It is Romain v Scuba TV [1995] Times Law Reports, November 11 1995, CA. Rent under a lease was guaranteed by a guarantee contract under seal, i.e. a speciality. It was held that because the limitation period that related to any claim by the landlord against the tenant was 6 years under s 19, any claim against the guarantor was subject to the same 6-year limitation period, notwithstanding that the guarantee itself was made under seal. This tells me that the nature of the contract of guarantee (or MIG) is irrelevant (I think the position of a MIG insurer is analogous to that of the guarantor) and that what is relevant is the nature of the contract that is guaranteed (or insured).

Following this he noticed an article in a new law book:

I did notice a small para on subrogation. It says..."but for limitation purposes the vital point is that the indemnifier (e.g. a MIG (my comment)) stands in the shoes of the indemnified (e.g. the shortfall lender). In Orakpo v Mansion Investments [1978] A.C. 95 the Court of Appeal held that the right of the indemnifier to sue is synonymous with the right of the indemnified. It therefore follows that there is no separate category of subrogation rights for limitation purposes".

I think that this says it all.

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I leave you all to draw your own conclusions, but I must say it looks pretty conclusive. Hope this helps those of you with MIGS.

Mark.

-- M Amos (idgroms@hotmail.com), February 07, 2003.

Looks as though that's one avenue closed. I am wondering if it applies to all MIGs or just those for later mortgages. From what I've read pre 1990 mortgages may not have the clause that allows the 12 year rule to apply, Does anyone now the wording of the clause that allowed them 12 years?

-- Sue (bradfordandbingley_suck@yahoo.co.uk), February 07, 2003.

The Halifax tried to tell me that I owed the portion of the MIG payout under subrogation to Royal and Sun Alliance. In their terms and conditions for the Mortgage, it DID state that I would be liable for any shortfall, which is why I bought the MIG.

Both Halifax and R&SA refused to supply copy of MIG, saying it was a block copy, but they did supply a copy of the terms (dated 9 months after I bought my MIG). It did not state in the terms that I would be liable for the payout.

I carefully read all the paperwork the Halifax had supplied me with, and could not find anything that stated *I* would be liable for MIG payout. I asked Halifax to send me any documents that substantiated their claim - they declined, saying they had no more paperwork that was relevant. However, they did get R&SA to write me a letter, saying they had given permission to chase the money (big deal).

This came back to them mis-selling the insurance. Either the policy was mis-sold by stating I would not be liable for shortfall, or Halifax and R&SA were doing a naughty by trying to make me pay a debt that I was not liable for.

I think each MIG should be taken on it's own merit, as it would appear that each case is possibly unique. I realise that the original question relates to the 6/12 year rule, but it would seem that it may not even be an issue in some cases as insurers have not worded their policies correctly.

Some years ago, I seem to remember hearing of a law that stated that if a person paid for an insurance, they could then not be liable under subrogation, as the person paying the premium is the INSURED PARTY. I have been led to believe that this is why lenders now make you take out an insurance for yourself before they will give a mortgage. Please correct me if I'm wrong.

Tracey

-- One Angry Mother (madcow678@hotmail.com), February 10, 2003.

Tracey/Sue,

Some points below from a solicitor which I think will answer your postings above.

1. A borrower dose not 'buy' a MIG - s/he just pays for the lender to buy a MIG

2. As nothing is bought, there is no claim for misselling, but there could be a claim for misrepresentation regarding the terms of the mortgage,i.e. of the effect of a MIG (but this is very difficult to prove).

3. It doesn't matter that there is nothing in documentation stating that a borrower will be liable for a MIG payout - liability comes under subrogation under the old 1865 Act, although it has been described as both an equitable principle and a common law one!!

4. The issue of subrogation in insurance cases is nothing new or unique - it is well estabished.

5. The last point about a person who has paid an insurance premium not being liable to reimburse an insurer may well be correct. But it does not apply to MIGs, as the contract is between the insurer and the lender - the borrower does not have a contract with the insurer and does not pay the premium (although s/he has to reimburse the lender for the premium that it pays, this is not the same thing).

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

What happens in the event that an insurance company goes into liquidation or fails to operate anymore, what is the situation then, i.e. should the lender have been aware and made other arrangements etc.

-- jesse (jie@btinternet.com), November 09, 2003.

Jesse,

As a MIG only covers the lender (even if you were told otherwise when you bought it) then it's their bad luck if their insurer goes down the pan. It won't make any difference to the borrower as the lender will still be looking to recuperate all the shortfall. The only way I think you may be able to counterclaim that the MIG was mis-sold or mis-represented would be if you have WRITTEN evidence of such, and of course you'd need to be within the 6 year time frame to counterclaim.

Mark.

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