Indemnity Insurance of Insolvency Act Lender conveyancing requirements
Godiva Mortgages and Barnsley BS, as with many lenders, have their own specific instructions when it comes to insolvency act indemnity insurance. The content herein aims to help property law practitioners on the various mortgage company conveyancing panel where the title for the the property to be mortgaged incorporates insolvency act. Solicitors should still check the Council of Mortgage Lenders’ handbook requirements for each mortgage company, for example RBS, HSBC or Lloyds TSB. The information on this page Is not to be read as insolvency act indemnity insurance advice.
Need help with insolvency act indemnity insurance from your lender?
Being a conveyancing lawyer on a lender panel, you must report to the bank if you are aware that the title to the property is subject to a Insolvency Act or a transaction at an apparent undervalue completed in the past 5 years of the proposed charge. You must be satisfied that the lender will acquire their interest in good faith and will be protected under the provisions of the Insolvency (No 2) Act 1994 against their security being set aside. If you are not able to submit an unqualified COT, you must put in place transfer at undervalue or Insolvency Act indemnity insurance.
Please remember to obtain clear bankruptcy checks against all parties to any deed of gift or transaction at an apparent undervalue.
About Insolvency Act Indemnity Insurance
Thousands of conveyancing practitioner accross the UK often recommend Insolvency Act policies owing to a proposed or existing transfer at undervalue or deed of gift including gifts of money towards the buying of a residence. The potential loss arises where the person who transferred or “gifted” the premises (or the money) becomes insolvent their Trustee in Bankruptcy could set aside the transfer and claim an interest in the residence.
Accord and Yorkshire Building Society like most banks, instructions are such that where insolvency act indemnity insurance is to be taken out:
- your practice is required to disclose to the insurer all relevant information which you have gathered
- your practice are responsible for approving the terms of the insolvency act policy on behalf of the lender
- your practice must point out to the borrower that the borrower must adhere to any conditions of the insolvency act indemnity insurance policy and that the borrower should notify the mortgage company of any notice or potential claim in respect of the policy
- the limit of indemnity must meet the requirements for the lender (See Part II Handbook requirements )
- the insolvency act indemnity insurance policy must be for the benefit of the mortgage company and, if possible, for the benefit of the mortgagor and any subsequent owner or lender. Where the borrower will not be protected by the insolvency act indemnity insurance policy, you must advise the mortgagor of this fact.
- your firm must supply a copy of the insolvency act indemnity insurance to the mortgagor and explain to the mortgagor why the insolvency act indemnity insurance policy was effected and that a further policy may be necessary if there is additional lending against the mortgaged property
- the insolvency act indemnity insurance policy must not incorporate terms that you recognise would void or compromise the interests of the mortgage company
- the insolvency act indemnity insurance policy should be effected without expense to the bank
| Lender | Requirement |
|---|---|
| Accord Mortgages | An amount at least equal to the amount of the mortgage advance. Any indemnity insurance policy must protect the borrowers, any successors in title and any mortgagee. |
| Adam & Company | The open market value of the property according to the valuation report. |
| Bank of China | Cover to full value of the property or the Mortgage Advance, whichever is the higher. |
| Bank of Ireland | The limit of indemnity must be an amount not less than the market value of the property. |
| Bluestone Mortgages | An amount at least equal to the total mortgage advance. Any indemnity insurance policy must protect the borrowers, any successors in title and any mortgagee. |
| Family Building Society | An amount at least equal to the mortgage advance. |
| Handelsbanken | Purchase price or 110% of mortgage advance, whichever is the greater. |
| Landbay Partners | An amount equal to 100% of the property valuation or purchase price (whichever is greater) plus 10%. |
| Leeds Building Society | An amount at least equal to the amount of the mortgage advance plus 10%. Any indemnity insurance policy must protect the borrowers, any successor in title and any Mortgagee. |
| MPowered Mortgages | Either the minimum reinstatement value or where there is no valuation the market value/purchase price figure (whichever is higher). |
| Mortgage Agency Services | 110% of the purchase price or valuation, whichever is greater |
| NRAM Ltd | Preference for full market value of the property, but if this level of cover is not available, will accept a minimum of the actual loan amount. You must approve the policy on our behalf. |
| National Counties Building Society | An amount at least equal to the mortgage advance. |
| National Westminster Bank | An amount equal to the value of the property. |
| Principality Building Society | Full market value of the property is preferred but if this is not available we will accept the loan advance amount as minimum. You must approve the policy on our behalf. The estimated property value is stated in the Mortgage Offer in remortgage cases. Otherwise it will be stipulated in the Valuation. |
| Rooftop Mortgages | The value of the property for mortgage purposes as disclosed in the valuation. |
| Scottish Widows | The value of the property. |
| Skipton Building Society | For lender only cover we will accept a minimum of 110% (index-linked) of the amount of the loan. |
| RBS - Direct Line | An amount equal to the value of the property. |
| Tipton Coseley Building Society | Minimum of mortgage advance. |
Non lender-specific considerations
The full terms, conditions and exclusions for insolvency act indemnity insurance are identified in the policy paperwork. Conveyancing solicitors should direct the borrower to the insolvency act indemnity insurance policy itself. Insolvency Act indemnity insurance is designed to afford indemnity in respect of the risks specified in the policy schedule - so it is essential check the schedule to determine that it is correct. The duration of this non-investment insurance contract is in perpetuity unless otherwise stated in the insolvency act indemnity insurance policy. It is well worth checking that the time frame is correct.Significant features and benefits of insolvency act indemnity insurance :
The insurance will normally cover where someone claims to be entitled to the benefit of the specified risks, stated in the insolvency act indemnity insurance schedule. Insolvency Act indemnity insurance Policies are likely to cover the following- Loss in market value due to the successful enforcement of the risks specified in the insolvency act insurance.
- Money paid with the written consent of the insurance company to free the property from the risks specified in the insolvency act insurance.
- The cost of works (including professional fees) for the purpose of the development begun, or contracted for, prior to proceedings for the enforcement of the risks specified in the insolvency act insurance, to the extent that such costs are rendered abortive by court decision.
- The cost of altering or taking down all, or part of the development and the reinstatement of the land, insofar as such alteration, demolition or re-instatement is made necessary by court order.
- Liability for damages or compensation incurred in any action regarding the risks specified in the insolvency act policy, as well as incurred costs and expenses.
- All other costs and expenses incurred by the Insured with consent in writing from the relevant insurer
As is the case with all conventional insurance, all material information needs to be disclosed to the insurance company at the outset and throughout the policy term, otherwise the insolvency act policy will not be valid.
Other considerations for insolvency act indemnity insurance
Insolvency Act Indemnity policies can provide effective protection, but non-lender clients should be asked to give pause for thought and consider that the consequences of not being able to enjoy the property as anticipated may mean that insolvency act indemnity cover will not necessarily be the answer.The content set out above is in relation to properties in England and Wales.