Indemnity Insurance of Absentee Freeholder Bank conveyancing requirements
Coventry BS and Barnsley BS, as with most mortgage companies, have their own specific instructions when it comes to absentee freeholder indemnity insurance. This page sets out to enlighten conveyancing solicitors on the various lender solicitors panel where the title for the the property to be mortgaged contains absentee freeholder. Solicitors should still check the CML handbook requirements for each bank, be it HSBC, Accord or Santander. 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 conveyancing practitioner on a bank panel you must notify to the mortgage company (see Section two of the UK Finance Lenders’ Handbook) if it comes to your attention that the freeholder is either missing or insolvent. If the lender are to lend, they may ask you to take out absentee freeholder indemnity policy. In some conveyancing matters a purchaser or mortgage company might accept an absent freeholder indemnity insurance but many purchasers or lenders will not accept this as a solution. See 5.14.15 to see if the bank accept indemnity insurance if the freeholder is absent or insolvent. Examples of such requirements as follows:
| Lender | Requirement |
|---|---|
| Ahli United Bank | Please refer to Central Administration Unit |
| 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. |
| First Direct | Yes, indemnity insurance is acceptable. |
| Paragon Residential | Generally no, but:- (i) Where the security comprises a house, we may be prepared to accept a suitable indemnity policy if the landlord is absent or insolvent where the lease term is a long lease such as 999 years or similar. (ii) Where the security comprises a flat, we may be prepared to accept a suitable indemnity policy if the landlord is absent or insolvent if:- 1. the term of the lease remaining at the end of the mortgage is a minimum of 100 years; and 2. there are no more than two flats in the block; and 3. there is sufficient evidence that the owners of the flats are performing the obligations imposed on the landlord, particularly, in respect of repairing and insuring the building. |
| Scottish Widows | Yes. |
| Topaz Finance | No. |
| Yorkshire Bank | Yes, if the requirements of section 9 are met. |
About Absentee freeholder Indemnity Insurance
Many property lawyer throughout the UK regularly rely on absentee freeholder insurance to help move the conveyancing process when the freeholder or freeholder of land or premises is insolvent, absent or where the company is no longer in existence. This impacts the ability to pay ground rent and seek permission to lease assignments and alterations to the residence. The potential risk is that the freeholder may request ground rent or seek forfeiture of the lease on grounds of breach of covenant should they subsequently emerge.
Bank of Scotland and Barclays as with the majority of lenders, obligations require that where absentee freeholder indemnity insurance is effected:
- the absentee freeholder indemnity insurance policy should not contain terms that you recognise would invalidate or prejudice the interests of the lender
- your practice must provide a copy 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 might be mandatory if there is further borrowing against the mortgaged property
- the absentee freeholder indemnity insurance policy should be placed on risk without cost to the lender
- you is required to reveal to the insurer all relevant information which you have gathered
- the level of indemnity must satisfy the requirements for the lender (See Part II Handbook requirements )
- the absentee freeholder indemnity insurance policy must be in favor of the bank and, wherever possible, in favour of the mortgagor and any subsequent registered proprietor or lender. If the borrower will not be covered by the absentee freeholder indemnity insurance policy, you must advise the mortgagor of this fact.
- your firm must spell out to the borrower that the borrower must comply with any conditions of the absentee freeholder indemnity insurance policy and that the borrower should notify the mortgage company of any notice or potential claim in respect of the insurance
- you must approve the terms of the absentee freeholder policy on behalf of the bank
| Lender | Requirement |
|---|---|
| Ahli United Bank | An amount equal to the value of the Mortgaged Property |
| Bank of Ireland Mortgages | The limit of indemnity must be an amount not less than the market value of the property. |
| Co operative Bank | An amount equal to at least 110% of the mortgage advance. |
| Coutts Finance | The open market value of the property according to the valuation report. |
| Coventry Building Society | Minimum of the value of the property. |
| First Direct | The value of the insurance must be for at least the full value of the property |
| Foundation Home loans | An amount equal to 110% of the valuation or purchase price - whichever is the greater. |
| Hampden | The open market value of the property according to the valuation report. |
| Hodge Equity Release | An amount equal to 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, the borrower(s) and any successor in Title. |
| Holmesdale Building Society | 110% |
| Lloyds | The value of the property. |
| 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. |
| Nedbank | You are to refer to us for specific instructions on any matter involving indemnity insurance. |
| Paragon Mortgages Ltd | An amount at least equal to the stated value of the Property. |
| Paragon Residential | An amount at least equal to the stated value of the Property. |
| Scottish Widows | The value of the property. |
| RBS - Direct Line One | An amount equal to the value of the property. |
| Topaz Finance | Valuation or purchase price, whichever is higher. The policy must always benefit the borrower and any subsequent owner or mortgagee - the policy must be index linked. |
| Yorkshire Bank | Open market value of property. |
| Zephyr Mortgages | Valuation or purchase price, whichever is higher. The policy must always benefit the borrower and any subsequent owner or mortgagee - the policy must be index linked. |
Absentee Freeholder Contingency Insurance : Reflections
The extent of the terms for absentee freeholder indemnity insurance are set out in the policy document. Property lawyers should direct your non-lender client to the absentee freeholder indemnity insurance policy paperwork. Absentee Freeholder Contingency insurance is devised to afford indemnity in respect of the risks set out in the policy schedule - so it is essential check any draft to determine that it is correct. The duration of this non-investment insurance agreement is in perpetuity unless otherwise stated in the absentee freeholder indemnity insurance policy. Adequacy in this regard should be checked.Absentee Freeholder indemnity insurance: Significant features and benefits:
This policy would usually provide protection from financial loss that might arise in the event of a third party making a cliam in respect of the risks identified in the policy document. Absentee Freeholder indemnity insurance Policies are likely to cover the following- Expenses for works (including architects’ and surveyors’ fees) for the purpose of the development commenced, prior to proceedings for the enforcement of the risks specified in the absentee freeholder policy, to the extent that such costs are rendered abortive by court order.
- Diminution in value due to the successful enforcement of the risks specified in the absentee freeholder insurance.
- The out of pocket expenses 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.
- All sums paid with the written consent of the insurance company to liberate the land from the risks specified in the absentee freeholder policy.
- Cover for compensation incurred in any proceedings in respect of the risks specified in the absentee freeholder indemnity insurance, including legal and associated costs.
- All ancillary costs and expenses incurred by the Insured with the written consent of the relevant insurance company
Always check what is not included in the absentee freeholder indemnity insurance e.g. does the policy cover any residence that has been altered within the year prior to the commencement of the policy? Are legal costs covered?
Absentee Freeholder Indemnity Insurance has limitations - Supplemental considerations
There may be consequences arising from the enforcement of the risks identified in the absentee freeholder insurance which are not adequately covered by financial compensation. Content on this webpage is for general information for conveyancers and solicitors in England and Wales on the the bank solicitor panel, it does not constitute advice for members of the public who should contact their lawyer for advice relating to the lender indemnity insurance. Whilst we endeavour to keep the information up to date and correct we do not make any representation or warranties of any kind about its completeness, accuracy, reliability or suitability. Any reliance you place on the information is strictly at your own risk. Lexsure will not be liable for any direct or indirect loss or damage arising out of or in connection with the use of this information.
An important exclusion applying to most absentee freeholder Policies is if you make any contact with any party who might cause a claim under the Policy, it can invalidate the cover.
The above information covers to properties in England and Wales.