Indemnity Insurance of Absentee Freeholder Mortgage Company conveyancing instructions
Chelsea BS and Halifax, in common with most lenders, set their own specific instructions when it comes to absentee freeholder indemnity insurance. This page is designed to help conveyancing lawyers on the numerous mortgage company approved list of panel lawyers where the title to be charged contains absentee freeholder. It is not a alternative for checking the Council of Mortgage Lenders’ handbook requirements for each lender, be it Bank of Scotland, HSBC or Skipton. The information on this page is not focused on absentee freeholder indemnity insurance requirements.
Need help with absentee freeholder indemnity insurance from your lender?
As a property lawyer on a mortgage company panel you must report to the lender (see PII of the UK Finance Lenders’ Handbook) if it comes to your attention that the freeholder is either absent or insolvent. If the bank are to lend, they may require absentee freeholder indemnity insurance. Banks’ attitudes are changing however and an increased number of mortgage companies have tightened their requirements on the minimum lease term before they are prepared to lend. LENDER monitor has identified since 2008 a changing attitude towards in missing freeholder insurance. Variouslenders in the past stated that, they would have lent on an absentee freeholder, whereas they will no longer do so. See 5.14.15 to see if the lender accept indemnity insurance if the freeholder is absent or insolvent. Examples of such requirements as follows:
| Lender | Requirement |
|---|---|
| Bank of Ireland Mortgages | Only if such insurance covers us in the event of a failure to insure or repair the common parts and services. |
| Godiva Mortgages | Yes. Provided that you are satisfied that the insurance will make the title good and marketable. |
| Halifax | Yes, subject to the requirements of section 9 being met. |
| Handelsbanken | Yes, if fully comprehensive. |
| Intelligent Finance | Yes |
| Monmouthshire Building Society | Yes provided you are satisfied that such insurance is a solution to the problem identified and you can give an unqualified Certificate of Title. The conditions in paragraph 9 must also be satisfied. Please add details of the Policy provider and the Policy number on the Certificate of Title and retain a copy on your file. |
| Santander | We may accept indemnity insurance but the matter must be referred to the Mortgage Operations office instructing you for confirmation that indemnity insurance is acceptable and for details of any additional requirements. |
About Absentee freeholder Indemnity Insurance
Thousands of lawyer across the UK regularly rely on absentee freeholder policies to help move the conveyancing process when the freeholder or freeholder of land or premises is insolvent, missing or where Bona Vacantia applies in relation to defunct companies. This results in an inability to pay ground rent and seek permission to lease assignments and alterations to the residence. The potential loss is that the freeholder may request ground rent or attempt forfeiture of the lease on the basis of breach of covenant should they subsequently re-appear.
Yorkshire Bank Home Loans and Santander in common with many mortgage companies, instructions are such that where absentee freeholder indemnity insurance is effected:
- your practice are responsible for approving the terms of the absentee freeholder policy on behalf of the mortgage company
- the absentee freeholder indemnity insurance policy should not incorporate terms that you are aware would void or prejudice the interests of the bank
- the absentee freeholder indemnity insurance policy must be in favor of the mortgage company and, if possible, in favour of the borrower and any future registered proprietor or lender. Where the borrower will not be covered by the absentee freeholder indemnity insurance policy, you must advise the mortgagor of this fact.
- the absentee freeholder indemnity insurance policy should be effected at no expense to the bank
- you must explain to the mortgagor that the borrower is obliged to adhere to any conditions of the absentee freeholder indemnity insurance policy and that the mortgagor should notify the mortgage company of any notice or potential claim in respect of the insurance
- your practice must reveal to the insurer all relevant information which you have obtained
- your firm must provide a duplicate of the absentee freeholder indemnity insurance to the mortgagor and explain to the borrower why the absentee freeholder indemnity insurance policy was effected and that a further policy may be mandatory if there is additional lending against the security of the property
- the level of indemnity must satisfy the requirements for the lender (See Part II Handbook requirements )
| Lender | Requirement |
|---|---|
| Adam & Company | The open market value of the property according to the valuation report. |
| Bank of Ireland Mortgages | The limit of indemnity must be an amount not less than the market value of the property. |
| Birmingham Bank | completions@birminghambank.com |
| DB UK Bank | An amount at least equal to the mortgage advance or credit limit, whichever the higher. The policy must be assignable |
| Darlington Building Society | The higher of value or purchase price of the property. |
| Godiva Mortgages | Minimum of the value of the property. |
| Halifax | An amount at least equal to the mortgage advance. |
| Handelsbanken | Purchase price or 110% of mortgage advance, whichever is the greater. |
| Intelligent Finance | An amount at least equal to the total of the initial mortgage advance plus any pre-agreed reserve. These amounts will be shown in the mortgage offer. |
| Investec | The open market value of the property according to the valuation report. |
| Keystone Property Finance | An amount equal to 110% of the valuation or purchase price - whichever is the greater |
| 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. |
| LendInvest | An amount at least equal to the valuation of the property. |
| Magellan Homeloans | At least equal to the value of the property |
| Monmouthshire Building Society | The higher of the purchase price or valuation. For remortgages, the value of the advance. |
| Platform | 110% of principal sum. |
| Santander | The purchase price or (if lower) 110% of the mortgage advance. |
| The Mortgage Works | The full purchase price/value of the property whichever is higher |
| RBS (One Account) | An amount equal to the value of the property. |
General Absentee Freeholder indemnity insurance points to consider
The full terms, conditions and exclusions for absentee freeholder indemnity insurance are identified in the policy paperwork. Conveyancing solicitors should point the borrower to the absentee freeholder indemnity insurance policy document. Absentee Freeholder Contingency insurance is devised to grant indemnity in respect of the risks specified in the policy schedule - so you should check the schedule to determine that it is correct. The lifetime of this non-investment insurance contract is in perpetuity unless otherwise stated in the absentee freeholder indemnity insurance policy. Again, please check that this is as you expected.Important aspects and benefits of absentee freeholder Contingency insurance :
Protection via such a policy is to cover the risk of third parties looking to enforce rights that can affect the use of a property. Absentee Freeholder indemnity insurance Cover normally includes- Money paid with the written consent of the insurance company to liberate the land from the risks specified in the absentee freeholder insurance.
- All other costs and expenses incurred by the Insured with consent in writing from the relevant insurance company
- Reimbursement for compensation incurred in any action in respect of the risks specified in the absentee freeholder policy, including incurred costs and expenses.
- 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 absentee freeholder indemnity insurance, to the extent that such costs are rendered abortive by court order.
- The cost of altering or demolishing 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.
- Loss in market value resulting from the successful enforcement of the risks specified in the absentee freeholder indemnity insurance.
You also need to be sure that the answers on the application form are accurate. Regardless of how remote a claim on the lender insurance policy might be you can be sure that the insurer will check the details on any proposal form very carefully prior to any claim being met.
Absentee Freeholder Indemnity Insurance has limitations - Further considerations
There may be consequences arising from the enforcement of the risks identified in the absentee freeholder policy which are not adequately covered by financial compensation.The content set out above covers to properties in England and Wales.