Dilemma – insurance claim required but no consent to let

by Readers Question

7:51 AM, 20th September 2013
About 5 years ago

Dilemma – insurance claim required but no consent to let

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Dilemma – insurance claim required but no consent to let

I have been reckless in not informing my mortgage lender that I’m renting my property out, however my most recent tenants have left the place in a state and I need to claim on malicious damage.

I’m concerned firstly that my insurer will contact my mortgage lender, and secondly if they do inform them, what are they likely to do?

Luckily there are no tenants in there at the moment so no one can be evicted, but can my house be repossessed?

I’ve never missed a payment, however the mortgage does have a guarantor on it.

My final concern is if the mortgage company demand repayment or switch my mortgage to a buy to let or black mark me, will this affect the guarantor as well or just me?

My thoughts are to stay away from the insurer and just foot the bill for the damage caused?

On another note, I would like to do things properly and request permission to let. If the mortgage lender says yes, is there any way of them finding out that I’ve already been renting it without consent?

In an ideal world id like to do the right thing with as little consequence as possible, whilst I know some mistakes will have to be paid for, if anyone has any advice on all the above I would be eternally grateful!! Dilemma - insurance claim required but no consent to let

Thanks

Jenifer



Comments

Mark Alexander

8:15 AM, 20th September 2013
About 5 years ago

Hi Jennifer

Is your insurance a landlords insurance policy and have you checked to ensure that malicious damage caused by tenants is actually insured? The reason I ask is that a lot of insurance companies exclude this risk if it it not specifically requested. If you are not insured that your dilemma solved insofar as making a claim goes.

The likelihood of your breach of mortgage terms being recognised and reported to your mortgage company are improbable but not impossible. Presumably your mortgage lender didn't sell you the insurance policy? If they did, there is already an argument for implied consent to let anyway.

If the claim is relatively low the chances are that it will be paid without contacting your mortgage lender. However, if it is a large claim your insurance company are more likely to try to wriggle out of paying out and that's where your problems could start. What is the value of putting right the damage? Can you not just claim against the tenants in the small claims court? Did they have a guarantor you can claim against? What's the financial status of the tenants and the guarantor? These are the things you need to be considering.

The consequences of failing to obtain consent to are far more serious. In your case, your lender could call in your loan and if you are unable to pay them back, perhaps by refinancing, they could repossess your property and sell it. If the sale proceeds didn't cover the debt and their fees they could then sue you and your guarantor for the balance of money due to them.

Now that your property is vacant this is a good time to request consent to let. If it is declined you should consider selling it or moving back in. If there are spare rooms you could take in lodgers to raise extra cash. As a matter of interest, what were the circumstances which lead to your decision to rent out your home? Your answer to this particular question may enable me to offer some further suggestions.

Neil Patterson

8:43 AM, 20th September 2013
About 5 years ago

Hi Jenifer,

In the old days ie when I first started in motgages in the 90s it was common practice for Lenders to request the details of your insurance and put what they called a notice on it. That meant if the policy was cancelled or changed they had to let the Lender know who could then make alternative arrangements if required. Thus the Lender knew its security was protected.

Over the years Lenders have become much more slack on this and it is the norm or has been not to require a notice on your insurance. If it was a while ago that the tenants moved in, you changed your insurance and the Lender hasn't mentioned it yet it is unlikely they have a notice and the insurance company is obliged to tell them.

However this does not mean you are out of the pickle so please listen to Mark's advice carefully. You do have an obligation to tell the lender and there are many other ways they can find out for example if you were to apply for credit within the lenders group of companies they would notice on the credit search that your voters role address is different!

Mark Alexander

8:48 AM, 20th September 2013
About 5 years ago

Reply to the comment left by "Neil Patterson" at "20/09/2013 - 08:43":

That's a very good point Neil, some lenders such as Platform Mortgages and West Brom Building Society do still request copies of insurance policies noting their interests. Another question for Jenifer then, who is the lender?

Vanessa Warwick

10:38 AM, 20th September 2013
About 5 years ago

Hi Jenifer,

If you were to claim on your insurance for tenant damage, it would be FRAUD.

If it was found out, your insurance would be invalidated.

I am afraid you need to take this as an expensive lesson not to try and cut corners as a landlord.

If I were in your shoes, I would pay for the damage myself, get "consent to let" from the lender, and change to specialist landlord & buildings insurance.

Sorry to be hard, but you are paying the price of not doing things by the book ....

Great if you don't get caught ... bad news if you do ...

To my mind, its simply not worth taking the risk.

Mark Alexander

10:50 AM, 20th September 2013
About 5 years ago

Reply to the comment left by "Vanessa Warwick" at "20/09/2013 - 10:38":

Hi Vanessa

You seem very confident in your statement but I don't agree, I think it is unnecessarily alarmist. Please challenge me if you do not agree with me.

Why do you think it would be fraud?

Let me explain by way of analogy why this isn't fraud .....

If you insure your car for me to drive, then I borrow it and crash it, would it be fraud if you were then to claim on your insurance policy? Of course not!

If you had financed the car and your finance company said in the loan terms you are not allowed to let anybody else drive it, then you would be in breach of your finance agreement based on the example I have offered. However, you certainly would be committing fraud would you? Also, unless there was a condition in your car insurance policy stating that you need permission from your finance company to allow other people to drive your car, then they would have to pay out on the basis they had insured the risk.

I use this analogy to explain the common misconceptions of the relationship between insurance and finance. At worst, Jenifer is in breach of her loan agreement, unless of course she never lived in the property and obtained the mortgage by deception. If she had applied for the mortgage on the basis she was going to live in the property, but never really intended to, that would be fraud.

Breach of contract is NOT fraud, it isn't even a criminal offence.
.

Neil Patterson

10:56 AM, 20th September 2013
About 5 years ago

Reply to the comment left by "Vanessa Warwick" at "20/09/2013 - 10:38":

We do not yet know if Jenifer's insurance has been changed to Landlords insurance or was left as her living in the property.

I agree if the insurance hasn't been changed and she is claiming to live in the property then it is insurance fraud, but if it is Landlords insurance which is independent of the mortgage then she is Ok to claim on the insurance, but it does not mean she is Ok with the mortgage.

However a claim for Malicious damage caused by herself would be very swiftly filed under BIN.

Vanessa Warwick

14:02 PM, 20th September 2013
About 5 years ago

Mark,

I was making the assumption (perhaps wrongly) that the OP had normal householder insurance on her property, not Landlord insurance, as per Neil's comment.

Hope that clarifies my first response?

Howard Reuben CeMap CeRER

14:07 PM, 20th September 2013
About 5 years ago

Hi Jenifer

Very pertinent points made above so far re the insurance side of things, and I would like to add that in order to completely be able to sleep well at night from now on, that either 'consent to let' or a remortgage to a BTL (if possible - i.e. LTV, credit status, income etc permitting), should really be one of the most urgent actions to implement right now too.

By the way, if you switch to a BTL deal, the guarantor could then be released from their commitment and liability, freeing them up to be mortgage holders elsewhere, and as an 'experienced' landlord you could probably benefit from a wide range of lenders (via a whole of market professional mortgage broker, of course 🙂 ) without having to provide proof of income either.

Mark Alexander

14:16 PM, 20th September 2013
About 5 years ago

Reply to the comment left by "Vanessa Warwick" at "20/09/2013 - 14:02":

Hi Vanessa

I did wonder about that but as Neil also says, Jenifer wouldn't be able to claim for malicious damage on that basis anyway.

kuldeep singh

14:22 PM, 20th September 2013
About 5 years ago

Hello,

I have a 15 unit apartment building and its my only property (other than my house). I own 50% of this building and a business partner owns 50%. Is there a formula or rule of thumb on what I should keep in the bank for maintenance/repairs etc so that I may take cash out each month after bills are paid.

thanks in advance

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