Absentee Freeholder Indemnity Insurance Mortgage Company conveyancing requirements
Barclays and Yorkshire Building Society, in common with the majority of banks, dictate their own specific instructions when it comes to absentee freeholder indemnity insurance. The purpose of this page to assist conveyancing lawyers on the different lender approved list of panel lawyers where the title for the the property to be mortgaged contains absentee freeholder. Lawyers are advised to familiarise themselves with the CML handbook requirements for each lender, be it Barnsley BS, Godiva Mortgages or Leeds Building Society. The content on this page Is not to be read as absentee freeholder indemnity insurance advice.
Need help with absentee freeholder indemnity insurance from your lender?
In your capacity as a solicitor on a lender panel you must disclose to the lender (see PII of the UK Finance Lenders’ Handbook) if it becomes apparent that the freeholder is either missing or insolvent. If the lender are to lend, they may insist on missing freeholder indemnity insurance. In some conveyancing matters a buyer or lender might accept an absent freeholder indemnity policy but many purchasers or lenders will not be willing to move forward. 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:
|Bank of Scotland||Yes, subject to the requirements of section 9 being met.|
|Investec||Refer to Banking Legal or PBLO notified to you in the Transaction Instructions.|
|Lloyds TSB Scotland||Indemnity insurance is required if we agree to lend.|
|New Life Mortgages||Please refer to Legal Services Department.|
|The Mortgage Business||Yes, subject to the requirements of section 9 being met.|
|Whistletree||Yes, Indemnity Insurance is required|
About Absentee freeholder Indemnity Insurance
Thousands of solicitor across the UK regularly rely on absentee freeholder insurance to help move the conveyancing process when the freeholder or freeholder of land or residence is insolvent, unresponsive or where the company is no longer in existence. This results in an inability to pay ground rent and obtain consent to lease assignments and alterations to the property. The potential risk is that the freeholder may request ground rent or attempt forfeiture of the lease on the basis of breach of covenant should they subsequently appear.
Bank of Scotland and Lloyds TSB in common with most lenders, obligations require that where absentee freeholder indemnity insurance is to be put on risk:
- your practice is obliged to reveal to the insurer all relevant information which you have acquired
- your firm must send a copy of the absentee freeholder indemnity insurance to the borrower 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 lending against the mortgaged property
- your firm 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 at no expense to the lender
- the absentee freeholder indemnity insurance policy should always be for the benefit of the bank and, wherever possible, in favour of the borrower and any future owner or mortgage company. If the borrower will not be protected by the absentee freeholder indemnity insurance policy, the mortgagor should be advised accordingly.
- the absentee freeholder indemnity insurance policy must not contain conditions which you know would invalidate or prejudice the interests of the lender
- you must point out to the borrower that the borrower must comply with 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 relation to the insurance
- the minimum level of cover for the policy must satisfy the requirements for the lender (See Part II Handbook requirements )
|Bank of Scotland|| Not less than mortgage advance plus 10%|
|Britannia||Cover to the full value of the property.|
|Co operative Bank||Cover to full value of the property.|
|Coutts Finance||The open market value of the property according to the valuation report.|
|Foundation Home loans|| An amount equal to 110% of the valuation or purchase price - whichever is the greater.|
|Halifax Loans|| An amount at least equal to the mortgage advance.|
|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||Please refer to Part 2, para 21.2 of Standing Instructions.|
|Landbay||An amount equal to 100% of the property valuation or purchase price (whichever is greater).|
|LendInvest||An amount at least equal to the valuation of the property.|
|Lloyds TSB Scotland|| The value of the property|
|Masthaven Bank||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.|
|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.|
|New Life Mortgages||Agree with Underwriting Department.|
|Paragon Residential||An amount at least equal to the stated value of the Property.|
|Platform||110% of principal sum.|
|Sainsbury's Bank||An amount equal to the higher of the value of the property or the purchase price.|
|Swansea Building Society|| Purchase price or market valuation whichever is the higher|
|The Mortgage Business|| An amount at least equal to the mortgage advance/credit limit - whichever is the highest.|
|Whistletree||The value of the property|
Absentee Freeholder Contingency Insurance : ReflectionsThe full terms, conditions and exclusions for absentee freeholder indemnity insurance are identified in the policy document. Conveyancing Practitioners are obliged to point the borrower to the absentee freeholder indemnity insurance policy document. The intention of absentee freeholder indemnity insurance is to provide indemnity in respect of the risks set out in the policy schedule - so it’s important to check the document to determine that it is as it should be. The duration of this non-investment insurance contract is in perpetuity unless the policy says something to the contrary. It is well worth checking that the time frame is correct.
Absentee Freeholder Contingency insurance: Important features and benefits: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 Policies should be checked for the following
- All sums paid with consent in writing from the insurance company to liberate the land from the risks specified in the absentee freeholder indemnity insurance.
- All ancillary costs and expenses incurred by the Insured with consent in writing from the relevant insurer
- Loss in market value due to the successful enforcement of the risks specified in the absentee freeholder indemnity 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 absentee freeholder policy, to the extent that such costs are rendered abortive by court order.
- Reimbursement for compensation incurred in any action concerning the risks specified in the absentee freeholder insurance, including legal and associated costs.
- 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.
Always check what is excluded from the absentee freeholder insurance e.g. does the policy cover any property that has been altered within the 12 months prior to the policy being put on risk? Does it cover legal costs?
Additional considerations for absentee freeholder indemnity insuranceAbsentee Freeholder insurance may satisfy lenders such as Nationwide or RBS 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.