Indemnity Insurance of Absentee Freeholder Bank conveyancing instructions
Lloyds TSB and Chelsea BS, like many lenders, set their own specific instructions when it comes to absentee freeholder indemnity insurance. The purpose of this page to assist domestic conveyancing lawyers on the various lender solicitors panel where the title for the the property to be mortgaged incorporates absentee freeholder. Solicitors should still check the Council of Mortgage Lenders’ handbook requirements for each bank, be it Accord, Santander or Halifax. 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?
As a solicitor on a lender panel you must report to the lender (see Part 2 of the UK Finance Lenders’ Handbook) if it becomes apparent that the freeholder is either absent or insolvent. If the bank are to lend, they may accept absentee freeholder indemnity insurance. Banks’ approach is changing however and an increased number of lenders have tightened their requirements on the minimum lease term before they are prepared to lend. LENDER monitor has noted a changing attitude towards to missing freeholder insurance. Variousmortgage companies previously stated that, they would have lent on an missing freeholder, whereas they will no longer do so. 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 |
|---|---|
| Bank of Scotland Private | This lender has not published an answer to this question. Please contact the lender.
|
| 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 ensure that the requirements of Section 9 of Part 1 being met and the policy being the benefit of us, our transferees and our assignees. |
| Furness Building Society | No |
| Lloyds TSB Scotland | Indemnity insurance is required if we agree to lend. |
| Parity Trust | Refer to 1.7 |
| 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 |
| 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 property is insolvent, absent or where Bona Vacantia applies in relation to removed companies. This impacts the ability to pay ground rent and obtain consent 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 alleging breach of covenant should they subsequently emerge.
Nationwide and Barnsley BS as with the majority of banks, obligations require that where absentee freeholder indemnity insurance is to be taken out:
- the absentee freeholder indemnity insurance policy should be placed on risk without expense to the mortgage company
- the absentee freeholder indemnity insurance policy must not contain terms that you recognise would invalidate or compromise the interests of the bank
- your firm must spell out to the borrower that the borrower must adhere to any conditions of the absentee freeholder indemnity insurance policy and that the mortgagor should notify the lender of any notice or potential claim in relation to the policy
- the absentee freeholder indemnity insurance policy must be for the benefit of the lender and, wherever possible, in favour of the borrower and any subsequent owner or mortgage company. If the mortgagor will not be protected by the absentee freeholder indemnity insurance policy, the borrower should be informed accordingly.
- your firm must approve the terms of the absentee freeholder policy on behalf of the lender
- you must provide 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 could be required if there is additional lending against the mortgaged property
- the level of indemnity must meet the requirements for the mortgage company (see UK Finance Lenders’ Handbook Part 2 )
- you is required to reveal to the insurer all relevant information which you have acquired
| Lender | Requirement |
|---|---|
| Allied Irish Bank | At least the amount of the mortgage advance. |
| Bank of Scotland Private | [This lender has not published an answer to this question. Please contact the lender.]
|
| Barnsley Building Society | An amount at least equal to the amount of the mortgage advance. Any indemnity insurance policy must protect the borrowers, any successors in title and any mortgagee. |
| Danske Bank | The limit of indemnity insurance should be the purchase price or valuation - whichever is higher |
| Family Building Society | An amount at least equal to the mortgage advance. |
| 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. |
| Furness Building Society | Property valuation or purchase price, whichever the greater. |
| Habito | Higher of purchase price or valuation |
| Kent Reliance | An amount at least equal to 110% of the mortgage valuation. |
| Lloyds TSB Scotland | The value of the property |
| Magellan Homeloans | At least equal to the value of the property |
| ModaMortgages | An amount at least equal to 110% of the mortgage valuation. |
| Nationwide Building Society | Purchase Price (valuation if price is at a discount). Contact Issuing Office for advice on a remortgage |
| Parity Trust | An amount equal to at least 110% of the mortgage advance |
| Perenna | The higher of the purchase price or valuation. |
| Reliance Bank | \xA31,000,000.00 |
| The Mortgage Lender | An amount at least equal to the mortgage advance. |
| Vida Homeloans | It must be for a minimum of 110% of the purchase price or valuation, whichever is greater |
| Whistletree | The value of the property |
Absentee Freeholder Contingency Insurance : Reflections
The extent of the terms for absentee freeholder indemnity insurance are explained in the policy document. Conveyancing solicitors should direct the borrower to the absentee freeholder indemnity insurance policy itself. The intention of absentee freeholder indemnity insurance is to grant indemnity in respect of the risks specified in the policy schedule - so it is essential check any draft to ensure it is correct. The continuance 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 :
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 should be checked for the following- 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.
- Cover for compensation incurred in any proceedings regarding the risks specified in the absentee freeholder policy, including fees of a legal nature.
- Expenses for works (including professional fees) for the purpose of the development commenced, 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.
- Diminution in value due to the successful enforcement of the risks specified in the absentee freeholder indemnity insurance.
- Money paid with consent in writing from the insurance company to free the land from the risks specified in the absentee freeholder insurance.
- All ancillary costs and expenses incurred by the Insured with the written consent of the relevant insurer
Due diligence should extend to checking that the answers on the application form are correct. However remote the likelihood of a claim on the bank insurance policy might be you can certain that the insurer will check the details on any proposal form thoroughly prior to any claim being paid out.
Further considerations for absentee freeholder indemnity insurance
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 above information is in relation to properties in England and Wales.