dicky ticker

hi folks

my problem is that i'm dealing with a solicitor who i've lost all faith in but am too far down the line to withdraw. here's my query

i bought a house 12 months ago with the girlfriend but as she was going through an unamicable divorce the house and mortgage was put in my name.
when she sold her house she paid off a lump sum on the mortgage.

we are now remortgaging with another lender and putting her name on the deeds and the new mortgage

i have just been told at this late stage that the lendder requires an insolvency indemnity policy, as it is deemed to be a gift or a transaction at an undervalue. this will protect the lender against my bankruptcy.

is this right??
i thought bankruptcy only happened to businesses

any help greatly appreciated

cheers

colin

dicky ticker

boy this page moves fast these days

fast bloke

depends on how the mortgage is being set up. If it is the normal way you will be joint tennants, so you wont need an insolvency indemnity policy as you will have joint and several liability (IE - you are both wholly responsible for paying the mortgage, so if you become bankrupt your OH has to pay)

If you are being set up as tennants in common then the lender probably would require an insolvency indemnity policy, as in this case, if you became bankrupt your OH would only be responsible for half of the mortgage and they wouldn't be able to reposses the house while she continued to pay her half. The normal reasons for tennancy in common are to allow for more efficient IHT planning or where each party might have their own family etc(so if your GF dies her kids get her half of the house etc.)
If neither you nor your girlfriend have kids I would wonder why the solicitor wouldn't just go for a normal joint tennancy, but if one or both of you do have kids then the way he is doing it and what he has told you would be considered the best way to safeguard your respective interests

Have a look on the web for the terms 'joint tennancy' and tennancy in common' you should get a lot more info

Jonathan Davies

That doesn't seem too unreasonable (I'm a lawyer but not a mortgage adviser or anything). Bankruptcy happens to individuals - in fact it only happens to individuals technically, as companies become insolvent rather than bankrupt strictly speaking.

If you did go bankrupt in future, your trustee in bankruptcy could look back at transactions in the past two (i think) years, and ask a court to have them set aside if they can be construed as attempts to get rid of your assets on the sly before going bankrupt and telling creditors to naff off. Giving stuff to a wife or girlfriend would be quite a classic way of doing that, and this is what the lender's worrying about.

dicky ticker

thanks guys

we have asked for the mortgage to be set up as joint tenants although my gf does have kids but they are well sorted if anything happens.

it is documented with our existing lender that the gf paid a huge chunk off the mortgage so its not as if she got her half for nothing

have spoken to the sols and they said it was incase we sold up and tried to cheat each other out of money then the lender would not lose out if there wasnt enough equity in the property (despite the mortgage being a third of the current market value).

things just dont seem right at the moment. so much for a fee free remortgage. is this how they get the money back for charging for insurance policies they dont need

thanks again

fast bloke

If it it being set up as a joint tennancy then you shouldn't need the policy. If you haven't paid anything out so far, tell them to p1ss off. If you have paid some fees you wont want to lose these, so ask the solicitor and lender to explain in writing why you must take the policy.

Which lender is it BTW?

chris singleton

Whether you hold the property as joint tenants or tenants in common has bugger all to do with an insolvency act indemnity policy

As mentioned above, the mortgagee will need to be protected against you gifting away a share of the equity in the property in the unlikely event that you are going bankrupt and are trying to effectively hide your assets.

That said, I don't think that your bank will require a policy as you are not gifting away the equity, your partner has already invested money into the property by paying off a chunk of the mortgage so there is no gift (providing the amount she paid is the equivelent to her share of the equity) i.e she didn't pay £10,000.00 off the mortgage but is receiving £80,000.00 of the equity

Even so, provided the matter is reported to the lender, most high street banks won't require a policy, crappy lenders like GMAC, Rooftop, Kensington, etc probably will.

The solicitor won't make any money by obtaining an indemnity policy.

If you haven't invested equally in the propety I'd recommend you enter into a declaration of trust setting out your respective shares in the event of a split.

Chris

chris singleton

Forgot to say, I assume that you have told your solicitor about the other half already paying a chunk off the mortgage?

fast bloke

chris - even if the gf hadn't paid anything towards the house, a joint tennancy arrangement would be a useless way to hide assets as both parties are 100% responsible for the mortgage

dicky ticker

cheers guys

fin. advisor has spoken to lender as he hadnt heard of it and they are insisting that we have the policy.

he has spoken to other major high street lenders who would want said policy too.

thanks again and all the best for the festive period

cheers

colin