Absentee Freeholder Indemnity Insurance Lender conveyancing requirements
Bank of Scotland and Leeds Building Society, like the majority of banks, set their own requirements when it comes to absentee freeholder indemnity insurance. This page sets out to enlighten property law lawyers on the numerous lender solicitors panel where the title for the the property to be mortgaged incorporates absentee freeholder. It is not a alternative for checking the CML handbook requirements for each lender, be it Skipton, RBS or Lloyds TSB. The information on this page Is not to be read as absentee freeholder indemnity insurance advice.
Need help with absentee freeholder indemnity insurance from your lender?
Being a conveyancing lawyer on a mortgage company panel you must notify to the lender (see Section two of the UK Finance Lenders’ Handbook) if it becomes apparent that the freeholder is either missing or insolvent. If the mortgage company are to lend, they may accept absentee freeholder indemnity insurance. Lenders’ approach is changing however and an increased number of mortgage companies have changed their requirements on the minimum lease term before they are prepared to lend. LENDER monitor has noted a changing attitude towards in absentee freeholder insurance. Numerouslenders previously 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 mortgage company accept indemnity insurance if the freeholder is absent or insolvent. Examples of such requirements as follows:
|Bradford & Bingley||Yes|
|Co operative Bank||Yes|
|Cynergy Bank||We will consider on a case by case basis.|
|Foundation Home loans||We will accept such policies in limited circumstances on a case by case basis. The policies must be adequate and if this means that the Policy is to be bespoke (i.e. not a self-write) then it is our requirement that such a policy is to be taken. You must be satisfied that the insurance will make the title good and marketable and you can give an unqualified Certificate of Title. |
|Pepper Money (UK)||No, Pepper Money does not lend where the landlord is absent or insolvent.|
|The Mortgage Business||Yes, subject to the requirements of section 9 being met.|
|Whistletree||Yes, Indemnity Insurance is required|
About Absentee freeholder Indemnity Insurance
Absentee freeholder Cover is typically required when the freeholder or freeholder of land or residence is insolvent, unresponsive or where Bona Vacantia applies in relation to defunct companies. This results in an inability to pay ground rent and obtain permission to lease assignments and alterations to the property. The potential loss is that the freeholder may request ground rent or seek forfeiture of the lease alleging breach of covenant should they subsequently surface.
Yorkshire Bank Home Loans and Yorkshire Building Society as with many mortgage companies, instructions are such that where absentee freeholder indemnity insurance is effected:
- your practice must send a copy of the absentee freeholder indemnity insurance to the mortgagor and explain to the mortgagor why the absentee freeholder indemnity insurance policy was effected and that a further policy may be required if there is further borrowing against the security of the property
- the limit of indemnity must satisfy the requirements for the lender (See Part II Handbook requirements )
- your practice is obliged to disclose to the insurer all relevant information which you have acquired
- your firm is duty bound to point out to the mortgagor that the borrower will need to comply with any conditions of the absentee freeholder indemnity insurance policy and that the mortgagor should notify the bank of any notice or potential claim in relation to the insurance
- the absentee freeholder indemnity insurance policy must not incorporate terms which you recognise would void or prejudice the interests of the lender
- the absentee freeholder indemnity insurance policy needs to be in favor of the bank and, wherever possible, in favour of the mortgagor and any next owner or lender. If the mortgagor will not be protected by the absentee freeholder indemnity insurance policy, the borrower should be advised accordingly.
- your practice are responsible for approving the terms of the absentee freeholder policy on behalf of the bank
- the absentee freeholder indemnity insurance policy must be effected without charge to the mortgage company
|Bradford & Bingley||Amount of loan + 15%|
|Co operative Bank||Cover to full value of the property.|
|Coutts Finance||The open market value of the property according to the valuation report.|
|Cynergy Bank||The market value of the property.|
|Foundation Home loans|| An amount equal to 110% of the valuation or purchase price - whichever is the greater.|
|Godiva Mortgages||Minimum of the value of the property.|
|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.|
|Mortgage Agency Services|| 110% of the purchase price or valuation, whichever is greater|
|Paragon Mortgages Ltd|| An amount at least equal to the stated value of the Property.|
|Parity Trust||An amount equal to at least 110% of the mortgage advance|
|Pepper Money||An amount equal to at least 110% of the purchase price or value, whichever is higher. Any indemnity insurance policy must be for our benefit, that of any transferee/assignee (legal or equitable) of the mortgage and also the borrower(s).|
|Pepper Money (UK)||An amount equal to at least 110% of the purchase price or value, whichever is higher. Any indemnity insurance policy must be for our benefit, that of any transferee/assignee (legal or equitable) of the mortgage and also the borrower(s).|
|St James Place||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.|
|The Mortgage Business|| An amount at least equal to the mortgage advance/credit limit - whichever is the highest.|
|RBS- First Active||An amount equal to the value of the property.|
|Royal Bank of Scotland -Natwest One||An amount equal to the value of the property.|
|Together Personal Finance||Minimum of £2,000,000.00 per claim.|
|Whistletree||The value of the property|
General Absentee Freeholder indemnity insurance points to considerThe full terms, conditions and exclusions for absentee freeholder indemnity insurance are identified in the policy document. Conveyancing Practitioners are obliged to point your non-lender client to the absentee freeholder indemnity insurance policy paperwork. The intention of absentee freeholder indemnity insurance is to grant indemnity in respect of the risks specified in the policy schedule - so it’s important to check the schedule to ensure it is as it should be. The lifetime of this non-investment insurance agreement 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 :The insurance will normally cover where someone claims to be entitled to the benefit of the specified risks, stated in the absentee freeholder indemnity insurance schedule. Absentee Freeholder indemnity insurance Cover normally includes
- Expenses for works (including professional fees) for the purpose of the development begun, or contracted for, before the commencement of 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 decision.
- Reimbursement for compensation incurred in any action concerning the risks specified in the absentee freeholder policy, including legal and associated costs.
- All sums paid with consent in writing from the insurance company to free the property from the risks specified in the absentee freeholder insurance.
- All other costs and expenses incurred by the Insured with the written consent of the relevant insurance company
- The out of pocket expenses of altering or destroying 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.
- Diminution in value due to the successful enforcement of the risks specified in the absentee freeholder insurance.
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 absentee freeholder policy will be invalidated.
Supplemental considerations for absentee freeholder indemnity insuranceAbsentee Freeholder insurance may satisfy lenders such as Halifax or Virgin Money and prevent clients from from suffering financially but it cannot compensate for the stress and inconvenience the emotional suffering - after all the value of a home cannot always be measured in cash in the eyes of the owner.
The content set out above covers to properties in England and Wales.
Find out more about Continuing Competence for Solicitors and professional standards.
Find out more about how flying freeholds can affect the marketability of a property.
Find out more about how absent freeholders can affect your ability to remortgage or sell your property.