Indemnity Insurance of Absentee Freeholder Bank conveyancing requirements
HSBC and Halifax, as with most banks, have their own specific instructions when it comes to absentee freeholder indemnity insurance. The purpose of this page to assist residential conveyancing solicitors on the various mortgage company approved list of panel lawyers where the title for the the property to be mortgaged includes absentee freeholder. Solicitors should still check the Council of Mortgage Lenders’ handbook requirements for each mortgage company, for example RBS, Leeds Building Society or Natwest. 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 disclose to the mortgage company (see PII of the UK Finance Lenders’ Handbook) if it comes to your attention that the freeholder is either missing or insolvent. If the bank are to lend, they may demand 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. Numerousmortgage companies in the past 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 mortgage company accept indemnity insurance if the freeholder is absent or insolvent. Examples of such requirements as follows:
| Lender | Requirement |
|---|---|
| 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. |
| Godiva Mortgages | Yes. Provided that you are satisfied that the insurance will make the title good and marketable. |
| JPMorgan | Refer to office issuing Mortgage Instructions. |
| Perenna | Please contact our Mortgage team by either telephone: 0330 341 2013 or Email: conveyancing@perenna.co.uk |
| Reliance Bank | Yes |
| Sainsbury's Bank | We will not lend where there is an absent or insolvent landlord. |
| TSB | Indemnity insurance is required if we agree to lend. |
About Absentee freeholder Indemnity Insurance
Many lawyer across the UK regularly rely on absentee freeholder policies to help move the conveyancing process 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 permission to lease assignments and alterations to the residence. The potential loss is that the freeholder may request ground rent or take action for forfeiture of the lease on grounds of breach of covenant should they subsequently emerge.
Birmingham Midshires and Coventry BS in common with many mortgage companies, requirements are that where absentee freeholder indemnity insurance is to be taken out:
- the absentee freeholder indemnity insurance policy must not contain conditions that you know would void or prejudice the interests of the bank
- your firm must approve the terms of the absentee freeholder policy on behalf of the mortgage company
- your practice is required to disclose to the insurer all relevant information which you have gathered
- the absentee freeholder indemnity insurance policy must be in favor of the bank and, if possible, for the benefit of the borrower and any next registered proprietor or mortgage company. Where the borrower will not be covered by the absentee freeholder indemnity insurance policy, you must advise the mortgagor of this fact.
- the level of indemnity must satisfy the requirements for the mortgage company (See Part II Handbook requirements )
- the absentee freeholder indemnity insurance policy should be placed on risk without charge to the mortgage company
- your firm is duty bound to point out to the mortgagor that the borrower must comply with any conditions of the absentee freeholder indemnity insurance policy and that the borrower should notify the lender of any notice or potential claim in respect of the policy
- you must provide a duplicate 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 additional insurance might be required if there is additional borrowing against the mortgaged property
| Lender | Requirement |
|---|---|
| Bank of Ireland Mortgages | The limit of indemnity must be an amount not less than the market value of the property. |
| Birmingham Bank | Please contact Head of Operations to discuss (Gareth Allen) |
| Britannia | Cover to the full value of the property. |
| Capital Home Loans | An amount which is at least equal to the value or the purchase price of the property, whichever is the higher |
| Godiva Mortgages | Minimum of the value of the property. |
| Halifax Loans | An amount at least equal to the mortgage advance. |
| Holmesdale Building Society | 110% |
| JPMorgan | 110% of principal sum. |
| Kent Reliance | An amount at least equal to 110% of the mortgage valuation. |
| M&S Bank | the value of the insurance must be for at least the full value of the property |
| Manchester Building Society | Purchases- higher of the Purchase price & valuation Re-mortgages- Loan x 115%. |
| Mortgage Agency Services | 110% of the purchase price or valuation, whichever is greater |
| Perenna | The higher of the purchase price or valuation. |
| Reliance Bank | \xA31,000,000.00 |
| Sainsbury's Bank | An amount equal to the higher of the value of the property or the purchase price. |
| 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. |
| TSB | The value of the property |
| Yorkshire Bank | Open market value of property. |
| Yorkshire 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. |
| 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. |
Non lender-specific considerations
The extent of the terms for absentee freeholder indemnity insurance are shown in the policy paperwork. Conveyancing Practitioners should direct your non-lender client to the absentee freeholder indemnity insurance policy document. Absentee Freeholder indemnity insurance is designed to provide indemnity in respect of the risks set out in the policy schedule - so it is essential check the document to determine that it is as it should be. The duration of this non-investment insurance agreement is in perpetuity unless the policy says something to the contrary. It is well worth checking that the time frame is correct.Important characteristics and benefits of absentee freeholder indemnity insurance :
The policy 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 Policies are likely to cover the following- Loss in market value resulting from the successful enforcement of the risks specified in the absentee freeholder indemnity insurance.
- Money paid with consent in writing from the insurance company to liberate the land from the risks specified in the absentee freeholder insurance.
- The cost 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.
- 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 policy, to the extent that such costs are rendered abortive by court order.
- Cover for compensation incurred in any proceedings in respect of the risks specified in the absentee freeholder insurance, as well as legal and associated costs.
- All other costs and expenses incurred by the Insured with consent in writing from the relevant insurer
You also need to be sure that the answers on the application form are correct. However remote the likelihood of a claim on the lender insurance policy might be you can certain that the insurer will check the details on any proposal form very carefully before any claim is met.
Other considerations for absentee freeholder indemnity insurance
Absentee Freeholder Indemnity policies can provide effective protection, but non-lender clients should be asked to give pause for thought and consider that the consequences of not being able to enjoy the property as anticipated may mean that absentee freeholder indemnity cover will not necessarily be the answer.The above information covers to properties in England and Wales.