Absentee Freeholder Indemnity Insurance Bank conveyancing requirements
RBS and Nationwide, as with most banks, set their own requirements when it comes to absentee freeholder indemnity insurance. The content herein aims to help domestic conveyancing firms on the various bank solicitors panel where the title to be charged contains absentee freeholder. It is not a alternative for checking the CML handbook requirements for each mortgage company, whether it be HSBC, Coventry BS or Skipton. 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 bank panel you must disclose to the lender (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 mortgage company are to lend, they may insist on absentee freeholder indemnity insurance. In some conveyancing transactions a buyer or mortgage company might accept a missing freeholder indemnity policy but many buyers or lenders will not be willing to move forward. 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 |
|---|---|
| Birmingham Bank | No |
| Britannia | Yes |
| Lloyds | Indemnity insurance is required if we agree to lend. |
| Metro Bank | Refer to Mortgage Operations Helpdesk, see 1.11. |
| Rely Mortgages | We only lend if (a) there are 6 or less flats in the building and (b) appropriate indemnity insurance covering the issue is in place. |
| Sainsbury's Bank | We will not lend where there is an absent or insolvent landlord. |
| Vida Homeloans | Vida Homeloans may accept indemnity insurance if the landlord is absent or insolvent, provided: • It meets our requirements in section 9, • There are 6 or less flats in the building, and • You must be satisfied that the insurance will make the title good and marketable and you can give an unqualified Certificate of Title |
About Absentee freeholder Indemnity Insurance
Absentee freeholder Insurance is normally required when the freeholder or freeholder of land or residence is insolvent, missing or where the company is no longer in existence. This impacts the ability to pay ground rent and seek consent to lease assignments and alterations to the property. The potential risk is that the freeholder may request ground rent or seek forfeiture of the lease on the basis of breach of covenant should they subsequently appear.
Accord and Natwest in common with many banks, obligations require that where absentee freeholder indemnity insurance is to be taken out:
- your firm must send a duplicate of the absentee freeholder indemnity insurance to the borrower 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 security of the property
- the minimum level of cover for the policy must satisfy the requirements for the lender (see UK Finance Lenders’ Handbook Part 2 )
- your firm must explain 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 mortgage company of any notice or potential claim in relation to the policy
- your practice must disclose to the insurer all relevant information which you have obtained
- your firm are responsible for approving the terms of the absentee freeholder policy on behalf of the bank
- the absentee freeholder indemnity insurance policy needs to be in favor of the bank and, wherever possible, for the benefit of the borrower and any future owner or bank. If the borrower will not be protected by the absentee freeholder indemnity insurance policy, the mortgagor needs to be informed accordingly.
- the absentee freeholder indemnity insurance policy should not contain conditions which you are aware would void or compromise the interests of the lender
- the absentee freeholder indemnity insurance policy should be placed on risk without charge to the mortgage company
| Lender | Requirement |
|---|---|
| Adam & Company International | The open market value of the property according to the valuation report. |
| Birmingham Bank | Please contact Head of Operations to discuss (Gareth Allen) |
| Bradford & Bingley | Amount of loan + 15% |
| Britannia | Cover to the full value of the property. |
| Family Building Society | An amount at least equal to the mortgage advance. |
| Fleet Mortgages | An amount at least equal to the valuation of the property. |
| Hinckley and Rugby | The policy must be for our benefit and for no less than the amount lent to the borrower, including retentions, stage payments and interest. |
| JPMorgan | 110% of principal sum. |
| Keystone Property Finance | An amount equal to 110% of the valuation or purchase price - whichever is the greater |
| Lloyds | The value of the property. |
| MPowered Mortgages | Either the minimum reinstatement value or where there is no valuation the market value/purchase price figure (whichever is higher). |
| Metro Bank | The open market value of the property according to the valuation report. |
| Monmouthshire Building Society | The higher of the purchase price or valuation. For remortgages, the value of the advance. |
| Rely Mortgages | An amount at least equal to 110% of the mortgage valuation. |
| Sainsbury's Bank | An amount equal to the higher of the value of the property or the purchase price. |
| Santander | The purchase price or (if lower) 110% of the mortgage advance. |
| 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. |
| 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. |
| Vida Homeloans | It must be for a minimum of 110% of the purchase price or valuation, whichever is greater |
Absentee Freeholder Contingency Insurance : Reflections
The extent of the terms for absentee freeholder indemnity insurance are explained in the policy paperwork. Property lawyers should point your non-lender client to the absentee freeholder indemnity insurance policy itself. Absentee Freeholder indemnity insurance is designed to provide indemnity in respect of the risks set out in the policy schedule - so you should check the schedule 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. Again, please check that this is as you expected.Absentee Freeholder Contingency insurance: Important characteristics 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 Cover normally includes- Money paid with consent in writing from the insurance company to liberate the property from the risks specified in the absentee freeholder indemnity insurance.
- All other costs and expenses incurred by the Insured with the written consent of the relevant insurer
- 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.
- Market value reduction due to the successful enforcement of the risks specified in the absentee freeholder indemnity insurance.
- Cover for compensation incurred in any action regarding the risks specified in the absentee freeholder insurance, including fees of a legal nature.
- Expenses for works (including professional fees) for the purpose of the development started, prior to proceedings for the enforcement of the risks specified in the absentee freeholder insurance, to the extent that such costs are rendered abortive by court order.
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.
Absentee Freeholder Indemnity Insurance has limitations - Other considerations
Absentee Freeholder insurance may satisfy lenders such as Lloyds TSB or Godiva Mortgages 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. Information contained within this webpage is for general information for conveyancers and solicitors in England and Wales on the the mortgage company solicitor panel, it does not constitute advice for members of the public who should contact their lawyer for advice relating to the mortgage company 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 content set out above is in relation to properties in England and Wales.