Indemnity Insurance of Absentee Freeholder Bank conveyancing obligations
Chelsea BS and Barnsley BS, as with many lenders, have their own specific instructions when it comes to absentee freeholder indemnity insurance. The purpose of this page to assist property law solicitors on the different bank conveyancing panel where the title to be charged includes absentee freeholder. Lawyers are advised to familiarise themselves with the Council of Mortgage Lenders’ handbook requirements for each bank, whether it be Natwest, Santander or Lloyds TSB. 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 property lawyer on a mortgage company panel you must disclose to the mortgage company (see Section two of the UK Finance Lenders’ Handbook) if it comes to your attention that the freeholder is either absent or insolvent. If the lender are to lend, they may insist on missing freeholder indemnity insurance. Lenders’ attitudes are changing however and an increased number of mortgage companies have tightened their requirements on the minimum lease term before they are prepared to lend. LENDER monitor has noted a changing attitude towards to absentee freeholder insurance. A number of lendersmortgage 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 lender accept indemnity insurance if the freeholder is absent or insolvent. Examples of such requirements as follows:
| Lender | Requirement |
|---|---|
| Furness Building Society | No |
| Halifax | Yes, subject to the requirements of section 9 being met. |
| Mortgage Agency Services | Yes |
| National Westminster Bank | Yes |
| Precise 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. |
| Principality Building Society | Yes - provided you are satisfied that such insurance is a solution to the problem identified and you can give an unqualified Certificate of Title. The conditions in section 9 must also be satisfied. You must provide us with a copy of the Policy and retain a copy of the Policy on your file. |
| RBS - Direct Line One | Yes. |
About Absentee freeholder Indemnity Insurance
Thousands of lawyer across the UK regularly rely on missing freeholder policies to help move the conveyancing process when the freeholder or freeholder of land or premises is insolvent, unresponsive 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 try to forfeiture of the lease claiming breach of covenant should they subsequently re-appear.
Nationwide and Yorkshire Building Society like the majority of lenders, instructions are such that where absentee freeholder indemnity insurance is effected:
- you must approve the terms of the absentee freeholder policy on behalf of the lender
- you must explain to the mortgagor that the borrower is obliged to adhere to any conditions of the absentee freeholder indemnity insurance policy and that the borrower should notify the mortgage company of any notice or potential claim in relation to the policy
- the absentee freeholder indemnity insurance policy should not incorporate terms which you know would void or prejudice the interests of the mortgage company
- you 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 additional insurance may be mandatory if there is further lending against the security of the property
- the absentee freeholder indemnity insurance policy should always be for the benefit of the bank and, if possible, for the benefit of the mortgagor and any next registered proprietor or mortgagee. If the borrower will not be covered by the absentee freeholder indemnity insurance policy, you must advise the mortgagor of this fact.
- your practice is required to reveal to the insurer all relevant information which you have obtained
- the absentee freeholder indemnity insurance policy should be effected at no cost to the mortgage company
- the limit of indemnity must satisfy the requirements for the lender (See Part II Handbook requirements )
| Lender | Requirement |
|---|---|
| Furness Building Society | Property valuation or purchase price, whichever the greater. |
| GE Money | GE Money Home Lending has withdrawn from the UK mortgage market. |
| Godiva Mortgages | Minimum of the value of the property. |
| Halifax | An amount at least equal to the mortgage advance. |
| Hodge Equity Release | An amount equal to the purchase price or value, whichever is higher. Any indemnity insurance policy must be for our benefit, that of any transferee/assignee (legal or equitable) of the mortgage, the borrower(s) and any successor in Title. |
| 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 | The open market value of the property according to the valuation report. |
| Kensington Mortgage | Must be for a minimum of 110% of the purchase price or valuation whichever is the greatest. |
| Mortgage Agency Services | 110% of the purchase price or valuation, whichever is greater |
| National Westminster Bank | An amount equal to the value of the property. |
| Nedbank | You are to refer to us for specific instructions on any matter involving indemnity insurance. |
| Paragon Mortgages Ltd | An amount at least equal to the stated value of the Property. |
| Precise Mortgages | An amount at least equal to 110% of the mortgage valuation. |
| Principality Building Society | Full market value of the property is preferred but if this is not available we will accept the loan advance amount as minimum. You must approve the policy on our behalf. The estimated property value is stated in the Mortgage Offer in remortgage cases. Otherwise it will be stipulated in the Valuation. |
| Rooftop Mortgages | The value of the property for mortgage purposes as disclosed in the valuation. |
| Scottish Building Society | Amount of mortgage plus 25%. |
| State Bank of India UK | The purchase price or value of the property, whichever is the higher. |
| Swansea Building Society | Purchase price or market valuation whichever is the higher |
| RBS - Direct Line One | An amount equal to the value of the property. |
| 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. |
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. Absentee Freeholder indemnity insurance is devised 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 continuance 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.Significant features 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- Loss in market value resulting from the successful enforcement of the risks specified in the absentee freeholder insurance.
- The out of pocket expenses 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.
- Money paid with consent in writing from the insurance company to liberate the land from the risks specified in the absentee freeholder indemnity insurance.
- Reimbursement for compensation incurred in any action concerning the risks specified in the absentee freeholder indemnity insurance, including solicitors charges.
- Expenses for works (including architects’ and surveyors’ fees) for the purpose of the development commenced, 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.
- All other costs and expenses incurred by the Insured with the written consent of the relevant insurance company
You also need to be sure that the answers on the application form are correct. Regardless of how remote a claim on the lender insurance policy might be you can rest assured that the insurer will check the details on any proposal form very carefully prior to any claim being met.
Absentee Freeholder Indemnity Insurance has limitations - Additional considerations
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 is in relation to properties in England and Wales.