House destroyed - can't pay mortgage

JWJ gurgled happily, sounding much like they were saying:

Things that are in no doubt...

- She owes them the mortgage value.

- She no longer has the same asset the mortgage was secured against.

- The mortgage contract almost certainly has a clause requiring current buildings insurance.

If she can't keep up the payments, they're likely to repossess. If the sale of the plot (as a repo plot needing clearing) won't actually clear the debt - and she'll still owe them the difference.

Even if she doesn't default on the payments, they're probably within their rights, since the security is gone, to ask for the mortgage to be repaid.

What's the plot worth as vacant building land, and do you know what the rebuilding cost is likely to be?

Her best bet is probably to see if she can sell the land as a plot - she should be able to get more from it than the BS would as a repo.

The mortgage is presumably in your sister's name? Don't the terms of the mortgage require HER to keep it insured?

Would you care to elaborate on the Direct Debit error? Was the error that of Tesco who failed to collect it at the right time, or was it refused because your nephew didn't have enough money in his account? Whichever of those it is could make quite a difference!

Roger Mills gurgled happily, sounding much like they were saying:

They probably also require her not to rent the property out...

Adrian, there's a lot of information I'm still trying to get hold of but I know there was a discussion with the Building Society at the time she moved out, and I believe they were fully in the know about the insurance arrangements. (Still to be proved though and correspondence was lost in the fire). I understand the nephew had to insure as a condition of the rental agreement. I have no idea of land or building costs at this time.

Roger, the Direct Debit problem is vague. The son changed Bank Account some weeks before the fire. He claims he spoke to Tesco and they agreed to change the Direct Debit details to the new account. They didn't. However, Tesco insist they were never informed and claim to have sent out 5 'overdue' letters chasing payment. The son claims not to have received any letters. Monthly payments were made on the 23rd of every month up to and including May. The payment due on 23rd June is the one that didn't happen. The house fire was on 28th June. It is hard to see how Tesco could have sent out 5 letters since 23rd June, but the fact is that payment wasn't made by the due date. In any event, it wasn't the banks fault.

JWJ gurgled happily, sounding much like they were saying:

Furry muff. It's entirely possible that the fact that the tenant is a family member makes it a different lightly poached fish kettle than if it was Joe Random-Tenant.

That's very unusual for a rental agreement. Normally, buildings insurance would be the landlord's problem. The tenant has no insurable interest in the building.

Was this an actual commercial tenancy, with paperwork to support it, or was it just an informal arrangement with a family member?

If the latter, I'd think the BS have less grounds to complain than the former - although neither will get the owner off her obligation. Right now, she owes the BS either the mortgage payments or the loan back, and they won't be happy that their security is gently smouldering.

One of the two is most certainly telling porkies. Still, it should be easy enough for the son/tenant to prove that the May payment was made...

Sorry, but this would not be enforceable for a normal domestic lease.

Buildings insurance is always the responsibility of the Landlord.

tim

The fire happened on 28 June, and the only outstanding premium had fallen due 5 days earlier ?

Not a valid ground to decline.

Involve the FInancial Ombudsman

More and more people are telling me that only Landlords can take out Building Insurance and yet Tesco happily sell Buildings insurance to tennants. As a test I went through their online purchasing facility and am in possession of a valid quote for a "Private Rented" property that I do not own. With the property in question, the original application form shows this to be a rented property insured by the tennant and Tesco have been taking the premium for 10/11 months.

However, there now seems to be a question mark over the May installment but until Bank Statements can be obtained we can't be sure. In any event, it is Tesco who failed to set up the new Direct Debit. Proving the date they were given the information could be difficult. I am inclined to think there is nowhere to go with Tesco.

This was not a commercial agreement. It was informal with a family member although it was done with the knowledge and advice of the BS and a form was completed for them giving the necessary information. Again, a copy is difficult because of the fire.

Given the liklihood that the property was uninsured, a better understanding of the actions the BS might take would be helpful.

They're not really saying that. They're saying that a lender will require the borrower to maintain buildings insurance. That's not the same thing as saying that tenants can't take out insurance. But getting a tenant to do it is plain stupid. How do you know he's kept the cover going? We're talking serious money here and to leave it to chance seems crazy.

Rob Graham

I'd pursue the insurer. I do believe that you have a strong case there. Even if one payment was late they still have received all the other payments.

I'd recommend paying the missing payment immediately and keep pressuring Tesco to honour the insurance. It seems that its your word against Tesco regarding the reasons for the missed payment. Since you have paid all the other payments then I would suspect a judge would look favourably on your case if it went to court.

Check the fine print of the insurance policy there may be something helpful there. As someone else suggested you can go to the Insurance Ombudsman or you could contact trading standards or the CAB.

(IME A lot of organisations fail to respond to change of bank details with direct debits. When I recently changed banks two or three companies did not handle this correctly)

If the Landlord insures then they know that the asset is covered. It is sensible for them to make sure that the building is insured and it is normally a requirement of having the mortgage. If you leave it to the Tenant and they fail to ensure cover you have a problem which is exactly what seems to have happened here.

If Tesco say that they have sent five letters then we are probably talking more than five days since the last payment. If there is now a question mark over the May payment it would seem more than likely that it wasn't made so getting confirmation from the Bank would seem to be a priority. If all the records have been lost and Tesco say that they have written five times it is going to be difficult to prove them liable if the second payment has also been missed. Mistakes can happen with a change of Bank but the fact that the direct debit had not been taken should have alerted the Tenant. It also seems strange that five letters chasing payment have all gone astray.

Both the owner and the building society now have a problem. The owner has a liability and little by way of assets and the BS is owed money that is no longer secured so it is unlikely to be able to collect. The chances are that they will wish to realise what money they can by selling what is left and will try to recover the balance of the debt as best they can. A salutary lesson of why insurance can sometimes be very important and why making certain that you have adequate cover shouldn't be left to anyone else.

Less of that defeatism is essential.

If the BS is presented with a disaster, it will be less impressed if it finds that steps which might have retrieved the situation have not been taken.

It might be a good idea to enlist the help of the BS in getting the insurance sorted out, as the BS hasa vital interest.

The insurance issue hinges around how many payments have been missed and we won't know about that until copy Bank Statements have been received.

If we can win that battle (which seems unlikely) then we are still faced with the issue of the son having an "insurable interest" in the building. My sister did not cancel her own Buildings insurance on this property until such time as she had proof that her son had taken out appropriate cover. We believe she could now sue him for the loss of her property. Such action ought to prove 'insurable interest' I would have thought.

That said, it seems fairly inevitable that the BS will get what they can for the property as it stands and take my sister to court for the balance of the loan. Since she has no assets or possessions, I'm using they can only decide on a small nominal payment to made for an indefinite period. Perhaps Bankruptcy.

Even two missed payments may not be fatal to the claim, TPIM.

But I am beginning to suspect that the insurance may be a red herring here.

If there is really no insurance, the BS will insist on the sale of the land. I suspect that it will simply write-off the balance.

But that is not what I want to ask this group. IF, as seems likely, there is no insurance settlement, then my sister is faced with trying to meet the mortage installments on a property she no longer has. Both she and her husband are on long-term Incapacity Benefit as they are unable to work. They have no savings and what possessions they did own, apart from their car, went up in flames along with the house. The only source of income apart from benefits was the rental from the house, which has stopped with immediate effect.

We would be grateful for any comments about what the likely course of action of the Building Society might be. I believe (though I'm not certain) that the mortgage value could be 75k and the market value of the house (before the fire) around 135k. It seems unlikely that the property could be restored/repaired, though it is on a larger-then- average plot of land.

You wont be shopping at Tesco any more then.........

OP is not telling the whole story or rather is not being accurate with the facts.

Before anyone can comment, the clear facts MUST be presented otherwise all posts are just surmising...

IME banks/building societies rarely write off debt like this. They will keep chasing for as long as it takes or sell the debt on.

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