Banks

[lyndylou]

Hi can anyone tell me if the Bank of Scotland has the right to take a maturing endownment and attach it to an existing loan?

A friend of mine has kept up payments on an old endownment policy after she sold on her house. She signed the life insurance part of the policy as security to a new re-payment business loan she acquired in 2003. She is a model customer never missing payments, or being late and has never caused the bank any alarm in fact she has secured two more smaller loans since, all payments met as required and on time. Her endownment is due to mature at the end of August and has been receiving the paper work to close it. Because the BOS has an interest in the policy the holders of the endownment sent her a letter to pass on to the BOS so they could give their permission to release the funds to her.

Instead they told her they would be seizing the full amount and taking it off the loan unless she could prove ( by way of a valuation ) that the property is worth more that the loan she has now - but here's the stinger (only after they discount that valuation by 60%.) The valuation can only be done by one of the BOS valuers! and will cost about £1,500

She had planned for money to go into upgrading her business since very little has been done for the duration of the credit crunch. Now that we can see light at the end of a very long tunnel, she thought she would be able to be a front runner in reviving her business!

She hasn't got the £15,00 for the valuation and feels ( with the discount ) its a big gamble anyway

The endownment was never asked to be used as part of the payments in the first place and only assigned because of the life cover. furthermore a recent e-mail from the BOS states that the agreement is "to make sufficient loan repayment to allow the loan to be fully repaid at the end of its term" - which it is!!

So is it worth her getting advice from a solicitor or financial advisor? She says she has other life cover that she could assign to the loan to cover the one that is maturing (if that's what the BOS would agree to) but she is unsure what to do for the best...........
Please advise - thank you

[factor-fiction]

I have read this a couple of times and am not sure I understand it.
Was it an interest only loan and has the loan period come to an end so the bank wants repayment of the outstanding capital? And if so, will the policy produce enough to repay the loan?

[ubasses]

It would be very unusual to be able to only assign the life insurance part of a policy to the Bank. Normally they would only be able to assign the whole policy. It is now also common when taking a charge over property/policies to make them all encompassing so the bank leaves itself the option of being in a position to claim any funds that come available from the relevant source, for any borrowing the customer has. I have now been retired a few years, but it would not have been normal to do this if the loans were being serviced with no problems. New security may have been requested in case of failure to pay. The current economical climate may have changed things drastically.
I used the ability to do this only once when a customer was doing everything they could to get out of repaying a business loan and decided to sell his property.

[factor-fiction]

If I understand your post, lyndalou, I think the answer to the question "can anyone tell me if the Bank of Scotland has the right to take a maturing endownment and attach it to an existing loan? " may be "yes, if the policy was assigned to them as security for the loan"

I think I've read this the same way as ubasses has

[lyndylou]

Hi Sorry to make clear the loan is ongoing - ending 2019 and the endownment is from an old house mortage from about 1981 - the loan is being serviced with no problems at all and is on course to be repaid by the end of the term - no it's a repayment loan so the loan is actually decreasing. There is no worry that the current agreement is at all faulty -The BOS have not requested any further security in the face of this maturing, (my friend is making an assumption that it may be the case that they will consider it) The BOS just decided this without any negotiations. The agreement she had at the set up of the loan states BOS secured £100,000 life cover only nothing about the actual endownment. Nothing about it being used as part payment and certainly never in the event of it maturing while the loan is being repaid without any problems

If she is not able to get this payment from her policy the business would still be in need of upgrading and if she cannot afford to do this she fears her business will be put in jeopardy - if it subsequently fails the BOS could then reposses and she would be left with nothing - she thought her business was safe because she had made sound investments in the past

[lyndylou]

Hi Factor Fiction - yes this seems true - the endownment has been assigned to the loan but only in the context of the life cover - If this policy had not matured now the loan was safe anyway going along nicely being paid from month to month, the BOS has never once raised concerns about it - it is on course and on time as I said before she is a model payer never even been late for a payment so she cannot understand the interest the BOS has on the policy - it may be that they should request a new life cover if the maturity of this one makes the security dip under the £100,000 they originally asked for???? what do you and ubasses think?

[factor-fiction]

I assume they needed the life policy as security before in case she died during the life of the policy. As she has survived that term they will still want security.
She needs to ask the BOS to explain things to her.

[ubasses]

Not having access to any of the paperwork I can only talk 'in general'.
The endowment was taken for a previous mortgage, it would have been assigned fully to the Bank at the time. The life cover to repay the mortgage in the event of death and the proceeds from the policy to repay the mortgage capital on maturity. it would appear that when your friend repaid the loan early they had retained their Charge over it and used it to ensure they received any Life Insurance proceeds to repay the
the Business Loan in event of death. If this is the only Security they took for the Loan (which would be very surprising for £100,000) this will now be lost to them as the Policy has matured.
She really now needs to make an appointment with her Business Manager to discuss the alternatives open and agreeable to both parties. I may be a new Whole of Life Policy, or one for specified number of years would be acceptable but do not be surprised if they say they want to take a Charge over her property.

[lyndylou]

Hi both not sure if I follow but = the endownment was something she hung on to after the sale of her house - around 1989 nothing to do with the BOS
years later 2003 she had it assigned as security for life cover only ( and she is still living ) to the value of £100,000 ( the whole security was £100,000 ) this is only part
the loan is ongoing until 2019 - the old endownment has matured so I am assuming they should ask for a top up of the security? instead the have decided to take the maturity payment off the loan its self - they argue that it will reduce the loan - but as you know the repayment will only go down slightly ?? dose this make more sense?

[ubasses]

Yes bit clearer, but very surprised that they gave her such a big loan with only Life Cover as Security. Obviously they have no Security now the endowment is maturing and that has to be resolved. So still recommend the appointment with her Manager to thrash out the alternatives. Has she checked all the documents carefully to ensure she did not misunderstand anything and they have the right to the maturing funds from the Policy.
Problem is if she cannot provide sufficient Security to suit their requirements they are within their rights to request the loan to be repaid, or at least reduced to a level where Security is no longer required. The fact that they are talking about valuing her property means that they either already have a Charge over it and are concerned about the value or are looking to to do so, to replace the Security they are losing. It certainly would not hurt for her to offer to take out another Life Insurance to cover the amount of the loan. Depending on her age and health this would be quite inexpensive.

[lyndylou]

Hi Ubasses - the security cover for the loan is £100,000 - the loan was a little higher than that she has not told me how much

[lyndylou]

Life cover is not an issue she has been very astute in the past she has quite a few policies -

[lyndylou]

sorry plus this policy was only part of the security but it was all life policies to make up the value

[ubasses]

This is the problem, not all the information is available, it really is one of those situations where all parties need to sit down together and come to a mutual agreement. However, Banks always makes sure that their Terms and Conditions give them the upper hand. I think she needs to make the appointment as soon as possible because if the Bank do not sign the Release Letter the funds are not going to be forthcoming. Involving a Solicitor would be expensive and he would most likely end up explaining the Banks Rights to her, and should be a last resort. It would not do any harm to take her Accountant with her if she has one and he is prepared to help without costing the earth.

[lyndylou]

Thank you both it has been a very informative afternoon... and although I am non the wiser I will advise her to go directly to the bank for a meeting and yes she has an accountant - never thought of that person thank you again

[ubasses]

The part that is a bit strange is that the only Security is Life Policies, these would repay the loan in event of her death, but how would the Bank recover their money should she get into financial difficulties, or become unable to run the business through illness in the next 6 years. Banks usually want Realisable Security, ie something they can sell such as a house or business premises, all stock and machinery (if it is that type of business). The early surrender values of the Life Policies probably would be insufficient. Unfortunately I think the appointment is important to find out how they are thinking, and what their exact requirements are.
You may be lucky with office hours now coming to and end, there may be a BOS employee come on here, or at least a Bank Manager who is still working and more up to date than me.