Insolvency Act Indemnity Insurance Lender conveyancing requirements
Natwest and Virgin Money, like many lenders, set their own requirements when it comes to insolvency act indemnity insurance. The purpose of this page to assist conveyancing solicitors on the numerous mortgage company approved list of panel lawyers where the title to be charged incorporates insolvency act. It is not a substitute for checking the Council of Mortgage Lenders’ handbook requirements for each bank, for example Lloyds TSB, Yorkshire Building Society or Halifax. The content on this page is not focused on insolvency act indemnity insurance requirements.
Need help with insolvency act indemnity insurance from your lender?
Undertaking property work as a conveyancing practitioner on a lender panel, you must report to the lender where it comes to your attention 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 satisfied 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 unable to submit an unqualified COT, you must put in place transfer at undervalue or Insolvency Act indemnity insurance.
Please remember to obtain clear bankruptcy checks against all parties to any deed of gift or transaction at an apparent undervalue.
About Insolvency Act Indemnity Insurance
Thousands of property lawyer throughout the UK regularly recommend Insolvency Act policies owing to an expected or existing transfer at undervalue or deed of gift including gifts of money towards the buying of a residence. The 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 residence.
Birmingham Midshires and Barnsley BS like the majority of banks, obligations require that where insolvency act indemnity insurance is to be put on risk:
- the minimum level of cover for the policy must meet the requirements for the lender (see UK Finance Lenders’ Handbook Part 2 )
- the insolvency act indemnity insurance policy must not incorporate conditions that you are aware would invalidate or prejudice the interests of the bank
- the insolvency act indemnity insurance policy must be placed on risk at no cost to the mortgage company
- you must disclose to the insurer all relevant information which you have acquired
- you are responsible for approving the terms of the insolvency act policy on behalf of the mortgage company
- the insolvency act indemnity insurance policy needs to be in favor of the mortgage company and, if possible, for the benefit of the mortgagor and any subsequent registered proprietor or bank. If the mortgagor will not be protected by the insolvency act indemnity insurance policy, the mortgagor should be advised accordingly.
- you must provide a duplicate of the insolvency act indemnity insurance to the borrower and explain to the mortgagor why the insolvency act indemnity insurance policy was effected and that a further policy may be mandatory if there is further borrowing against the security of the property
- your firm must explain to the mortgagor that the borrower will need to adhere to any conditions of the insolvency act indemnity insurance policy and that the borrower should notify the mortgage company of any notice or potential claim in relation to the insurance
| Lender | Requirement |
|---|---|
| Allied Irish Bank | At least the amount of the mortgage advance. |
| Birmingham Midshires | An amount equal to at least 110% of the purchase price or value, whichever is higher. |
| 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. |
| GE Money | GE Money Home Lending has withdrawn from the UK mortgage market. |
| Halifax Loans | An amount at least equal to the mortgage advance. |
| Harpenden Building Society | 110% of mortgage advance |
| Holmesdale Building Society | 110% |
| Investec | The open market value of the property according to the valuation report. |
| Lloyds | The value of the property. |
| MPowered Mortgages | Either the minimum reinstatement value or where there is no valuation the market value/purchase price figure (whichever is higher). |
| Mortgage Agency Services | 110% of the purchase price or valuation, whichever is greater |
| Paragon Residential | An amount at least equal to the stated value of the Property. |
| Platform | 110% of principal sum. |
| Sainsbury's Bank | An amount equal to the higher of the value of the property or the purchase price. |
| State Bank of India UK | The purchase price or value of the property, whichever is the higher. |
| RBS - Virgin One | An amount equal to the value of the property. |
| 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 |
General Insolvency Act indemnity insurance points to consider
The full terms, conditions and exclusions for insolvency act indemnity insurance are set out in the policy paperwork. Conveyancing Practitioners are obliged to point your non-lender client to the insolvency act indemnity insurance policy itself. Insolvency Act indemnity insurance is designed to provide indemnity in respect of the risks specified 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 otherwise stated in the insolvency act indemnity insurance policy. Adequacy in this regard should be checked.Insolvency Act indemnity insurance: Significant features and benefits:
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. Insolvency Act indemnity insurance Cover normally includes- 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.
- Diminution in value resulting from the successful enforcement of the risks specified in the insolvency act insurance.
- 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 insolvency act insurance, to the extent that such costs are rendered abortive by court decision.
- All sums paid with the written consent of the insurance company to free the land from the risks specified in the insolvency act insurance.
- All ancillary costs and expenses incurred by the Insured with the written consent of the relevant insurance company
- Liability for damages or compensation incurred in any proceedings in respect of the risks specified in the insolvency act indemnity insurance, as well as fees of a legal nature.
You also need to be sure that the answers on the application form are accurate. Regardless of how remote a claim on the bank insurance policy might be you can certain that the insurer will check the details on any proposal form very carefully before any claim is paid out.
Insolvency Act Indemnity Insurance has limitations - Additional considerations
Insolvency Act 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 insolvency act indemnity cover will not necessarily be the right solution.The above information covers to properties in England and Wales.