Indemnity Insurance of Insolvency Act Bank conveyancing requirements
Natwest and HSBC, as with the majority of mortgage companies, have their own specific instructions when it comes to insolvency act indemnity insurance. This page is designed to help property law practitioners on the different bank solicitors panel where the title to be charged includes insolvency act. Lawyers are advised to familiarise themselves with the Council of Mortgage Lenders’ handbook requirements for each lender, whether it be RBS, Leeds Building Society or Lloyds TSB. The content on this page Is not to be read as insolvency act indemnity insurance advice.
Need help with insolvency act indemnity insurance from your lender?
As a property lawyer on a mortgage company panel, you must notify to the lender if you are aware that the title to the property was subject to a Insolvency Act or a transaction at an apparent undervalue completed in the past 5 years of the proposed home loan. You need to be sure that the bank will not be compromised under the provisions of the Insolvency (No 2) Act 1994 against their security being set aside. Where you are not able to issue an unqualified certificate of title, you must put in place transfer at undervalue or Insolvency Act indemnity insurance.
Please remember to obtain clear bankruptcy searches against all parties to any deed of gift or transaction at an apparent undervalue.
About Insolvency Act Indemnity Insurance
Insolvency Act Cover is normally required owing to an expected or existing transfer at undervalue or deed of gift including gifts of money towards the purchase of a property. The potential loss arises because if the person who transferred or “gifted” the property (or the money) becomes bankrupt their Trustee in Bankruptcy could set aside the transfer and claim an interest in the property.
Accord and Santander like the majority of mortgage companies, instructions are such that where insolvency act indemnity insurance is to be put on risk:
- the level of indemnity must satisfy the requirements for the mortgage company (See Part II Handbook requirements )
- your firm must approve the terms of the insolvency act policy on behalf of the mortgage company
- you must send a duplicate of the insolvency act indemnity insurance to the mortgagor and explain to the mortgagor why the insolvency act indemnity insurance policy was effected and that additional insurance could be necessary if there is additional borrowing against the mortgaged property
- the insolvency act indemnity insurance policy must be in favor of the mortgage company and, if possible, for the benefit of the mortgagor and any subsequent registered proprietor or mortgagee. If the borrower will not be protected by the insolvency act indemnity insurance policy, the mortgagor should be informed accordingly.
- the insolvency act indemnity insurance policy should not incorporate terms which you recognise would void or compromise the interests of the lender
- your firm must disclose to the insurer all relevant information which you have acquired
- you is duty bound to spell out to the borrower that the borrower is obliged to comply with any conditions of the insolvency act indemnity insurance policy and that the mortgagor should notify the bank of any notice or potential claim in relation to the insurance
- the insolvency act indemnity insurance policy should be effected at no charge to the bank
| Lender | Requirement |
|---|---|
| Accord Buy to Let | 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. |
| Adam & Company International | The open market value of the property according to the valuation report. |
| April Mortgages | An amount at least equal to the mortgage advance. |
| Aviva Equity Release | Full value of the property. |
| Bank of Ireland Mortgages | The limit of indemnity must be an amount not less than the market value of the property. |
| 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. |
| Clydesdale Bank | Open market value of property. |
| Danske Bank | The limit of indemnity insurance should be the purchase price or valuation - whichever is higher |
| Darlington Building Society | The higher of value or purchase price of the property. |
| Holmesdale Building Society | 110% |
| 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. |
| Leeds Building Society | An amount at least equal to the amount of the mortgage advance plus 10%. Any indemnity insurance policy must protect the borrowers, any successor in title and any Mortgagee. |
| LiveMore | An amount equal to the purchase price or value of the property, whichever is higher |
| Metro Bank | The open market value of the property according to the valuation report. |
| National Westminster Bank | An amount equal to the value of the property. |
| Parity Trust | An amount equal to at least 110% of the mortgage advance |
| Perenna | The higher of the purchase price or valuation. |
| Platform | 110% of principal sum. |
| Swansea Building Society | Purchase price or market valuation whichever is the higher |
| The Mortgage Business | An amount at least equal to the mortgage advance/credit limit - whichever is the highest. |
Non lender-specific considerations
The extent of the terms for insolvency act indemnity insurance are shown in the policy paperwork. Conveyancing solicitors should direct the borrower to the insolvency act indemnity insurance policy paperwork. Insolvency Act Contingency insurance is designed to afford indemnity in respect of the risks specified in the policy schedule - so it’s important to 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.Significant aspects and benefits of insolvency act Contingency insurance :
Protection via such a policy is to cover the risk of third parties looking to enforce rights that can affect the use of a property. Insolvency Act indemnity insurance Cover normally includes- All ancillary costs and expenses incurred by the Insured with the written consent of the relevant insurance company
- Reimbursement for compensation incurred in any proceedings regarding the risks specified in the insolvency act insurance, including solicitors charges.
- Expenses for works (including architects’ and surveyors’ fees) for the purpose of the development started, prior to proceedings for the enforcement of the risks specified in the insolvency act indemnity insurance, to the extent that such costs are rendered abortive by court decision.
- 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.
- Diminution in value due to the successful enforcement of the risks specified in the insolvency act indemnity insurance.
- Money paid with the written consent of the insurance company to liberate the land from the risks specified in the insolvency act insurance.
As with any insurance policy, all material information needs to be disclosed to the insurance company at the outset and throughout the policy term, otherwise the insolvency act policy will be invalidated.
Insolvency Act Indemnity Insurance has limitations - Supplemental considerations
Bear in mind, that if a covenant is breached and changes have to be made, simply getting monetary compensation from insolvency act insurance may be adequate for your client.The content set out above is in relation to properties in England and Wales.