Indemnity Insurance of Absentee Freeholder Bank conveyancing obligations
Barnsley BS and Accord, as with the majority of lenders, set their own specific instructions when it comes to absentee freeholder indemnity insurance. The purpose of this page to assist conveyancing firms on the numerous bank solicitors panel where the title for the the property to be mortgaged incorporates absentee freeholder. Lawyers are advised to familiarise themselves with the CML handbook requirements for each bank, be it Virgin Money, Halifax or Skipton. 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 report to the mortgage company (see PII of the UK Finance Lenders’ Handbook) if it becomes apparent that the freeholder is either missing or insolvent. If the mortgage company are to lend, they may insist on absentee freeholder indemnity policy. Banks’ approach is changing however and an increased number of mortgage companies have changed their requirements on the minimum lease term before they are prepared to lend. LENDER monitor has identified since 2008 a changing attitude towards to missing freeholder insurance. A number of lendersmortgage 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 lender accept indemnity insurance if the freeholder is absent or insolvent. Examples of such requirements as follows:
| Lender | Requirement |
|---|---|
| Clydesdale Bank | Yes, if the requirements of section 9 are met. |
| Coventry Building Society | Yes. Provided that you are satisfied that the insurance will make the title good and marketable. |
| DB UK Bank | Yes, subject of the requirements of Section 9 being met |
| LendInvest | Yes. However, your attention is drawn to 9.1 below. You must be satisfied that the insurance will make the title good and marketable and you can give an unqualified Certificate of Title. |
| The Mortgage Business | Yes, subject to the requirements of section 9 being met. |
| The Mortgage Lender | No. We are not prepared to lend in these circumstances. |
| RBS- First Active | Yes. |
About Absentee freeholder Indemnity Insurance
Thousands of property lawyer across the UK regularly rely on absentee freeholder insurance to help move the conveyancing process when the freeholder or freeholder of land or property is insolvent, unresponsive or where Bona Vacantia applies in relation to removed companies. This results in an inability to pay ground rent and seek consent to lease assignments and alterations to the premises. The loss arises because the freeholder may request ground rent or seek forfeiture of the lease alleging breach of covenant should they subsequently surface.
Lloyds TSB and Santander like most mortgage companies, instructions are such that where absentee freeholder indemnity insurance is to be taken out:
- your firm are responsible for approving the terms of the absentee freeholder policy on behalf of the mortgage company
- the absentee freeholder indemnity insurance policy must be placed on risk without charge to the lender
- you is duty bound to 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 lender of any notice or potential claim in respect of the insurance
- your practice is required to disclose to the insurer all relevant information which you have gathered
- your practice must supply 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 additional insurance may be required if there is supplemental borrowing against the mortgaged property
- the absentee freeholder indemnity insurance policy needs to be for the benefit of the mortgage company and, if possible, in favour of the mortgagor and any next owner or mortgagee. If the mortgagor will not be covered by the absentee freeholder indemnity insurance policy, you must advise the borrower of this fact.
- the absentee freeholder indemnity insurance policy must not contain conditions that you are aware would invalidate or prejudice the interests of the mortgage company
- the level of indemnity must satisfy the requirements for the lender (See Part II Handbook requirements )
| Lender | Requirement |
|---|---|
| Bank of Scotland | Not less than mortgage advance plus 10% |
| Barclays plc | Higher of purchase price or valuation |
| Clydesdale Bank | Open market value of property. |
| Coventry Building Society | Minimum of the value of the property. |
| DB UK Bank | An amount at least equal to the mortgage advance or credit limit, whichever the higher. The policy must be assignable |
| Family Building Society | An amount at least equal to the mortgage advance. |
| Gen H | An amount equal to the value of the property unless specifically agreed in writing otherwise. |
| Godiva Mortgages | Minimum of the value of the property. |
| Keystone Property Finance | An amount equal to 110% of the valuation or purchase price - whichever is the greater |
| LendInvest | An amount at least equal to the valuation of the property. |
| Lloyds TSB Scotland | The value of the property |
| Metro Bank | The open market value of the property according to the valuation report. |
| ModaMortgages | An amount at least equal to 110% of the mortgage valuation. |
| Paragon Mortgages Ltd | An amount at least equal to the stated value of the Property. |
| Parity Trust | An amount equal to at least 110% of the mortgage advance |
| Progressive BS | The limit of indemnity insurance should be the purchase price or valuation - whichever is higher. |
| The Mortgage Business | An amount at least equal to the mortgage advance/credit limit - whichever is the highest. |
| The Mortgage Lender | An amount at least equal to the mortgage advance. |
| Royal Bank of Scotland | An amount equal to the value of the property. |
| RBS- First Active | An amount equal to the value of the property. |
Non lender-specific considerations
The full terms, conditions and exclusions for absentee freeholder indemnity insurance are explained in the policy paperwork. Conveyancing Practitioners are obliged to direct your non-lender client 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 is essential check any draft to determine that it is in order. The lifetime of this non-investment insurance agreement is in perpetuity unless otherwise stated in the absentee freeholder indemnity insurance policy. It is well worth checking that the time frame is correct.Important features and benefits of absentee freeholder indemnity 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- Diminution in value due to the successful enforcement of the risks specified in the absentee freeholder policy.
- Money paid with the written consent of 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 works (including professional fees) for the purpose of the development started, before the commencement of 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.
- Reimbursement for compensation incurred in any proceedings in respect of the risks specified in the absentee freeholder insurance, including solicitors charges.
- 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.
Don't forget to consider what is not included in the absentee freeholder indemnity insurance e.g. does the policy cover any residence 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 insurance
Bear in mind, that if a covenant is breached and changes have to be made, simply getting monetary compensation from absentee freeholder insurance may be adequate for your client.The above information covers to properties in England and Wales.