Lender conveyancing panel conditions re Insolvency Act Indemnity Insurance
Halifax and Leeds Building Society, in common with many mortgage companies, set their own specific instructions when it comes to insolvency act indemnity insurance. The purpose of this page to assist conveyancing solicitors on the various mortgage company solicitors panel where the title for the the property to be mortgaged includes insolvency act. It is not a alternative for checking the Council of Mortgage Lenders’ handbook requirements for each mortgage company, whether it be Godiva Mortgages, Natwest or Yorkshire Building Society. The information on this page is not focused on insolvency act indemnity insurance requirements.
Need help with insolvency act indemnity insurance from your lender?
As a conveyancing practitioner on a bank panel, you must notify to the lender if you are aware that the title to the property is subject to a Insolvency Act or a transaction at an apparent undervalue completed in the past 5 years of the proposed loan. You need to be sure that the bank will acquire their interest in good faith and will be protected under the provisions of the Insolvency (No 2) Act 1994 against their security being set aside. If you are not able to submit an unqualified COT, 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
Thousands of lawyer throughout the country often rely on Insolvency Act policies owing to a proposed or existing transfer at undervalue or deed of gift including gifts of money towards the acquisition of a residence. The potential loss arises where 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.
Santander and Chelsea BS in common with the majority of lenders, obligations require that where insolvency act indemnity insurance is effected:
- the level of indemnity must meet the requirements for the lender (see UK Finance Lenders’ Handbook Part 2 )
- the insolvency act indemnity insurance policy must be placed on risk at no expense to the bank
- the insolvency act indemnity insurance policy should not contain terms that you know would void or compromise the interests of the lender
- your practice must send a copy 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 a further policy may be necessary if there is supplemental borrowing against the mortgaged property
- your practice must approve the terms of the insolvency act policy on behalf of the mortgage company
- you is required to disclose to the insurer all relevant information which you have acquired
- the insolvency act indemnity insurance policy must be for the benefit of the mortgage company and, if possible, for the benefit of the mortgagor and any future registered proprietor or mortgagee. Where the borrower will not be covered by the insolvency act indemnity insurance policy, you must advise the borrower of this fact.
- your firm must 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 borrower should notify the lender of any notice or potential claim in respect of the policy
| Lender | Requirement |
|---|---|
| Accord Mortgages | 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. |
| Allied Irish Bank | At least the amount of the mortgage advance. |
| Bank of Scotland | Not less than mortgage advance plus 10% |
| Barclays plc | Higher of purchase price or valuation |
| Birmingham Bank | completions@birminghambank.com |
| Coventry Building Society | Minimum of the value of the property. |
| Cynergy Bank | The market value of the property. |
| First Direct | The value of the insurance must be for at least the full value of the property |
| JPMorgan | 110% of principal sum. |
| Kensington Mortgage | Must be for a minimum of 110% of the purchase price or valuation whichever is the greatest. |
| 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. |
| Lloyds Bank Private Banking | Not less than the Facility plus 10%. |
| MPowered Mortgages | Either the minimum reinstatement value or where there is no valuation the market value/purchase price figure (whichever is higher). |
| National Counties Building Society | An amount at least equal to the mortgage advance. |
| Nationwide Building Society | Purchase Price (valuation if price is at a discount). Contact Issuing Office for advice on a remortgage |
| Precise Mortgages | An amount at least equal to 110% of the mortgage valuation. |
| The Mortgage Business | An amount at least equal to the mortgage advance/credit limit - whichever is the highest. |
| The Mortgage Works | The full purchase price/value of the property whichever is higher |
| RBS - Direct Line One | An amount equal to the value of the property. |
Non lender-specific considerations
The full terms, conditions and exclusions for insolvency act indemnity insurance are set out in the policy paperwork. Property lawyers are obliged to point your non-lender client to the insolvency act indemnity insurance policy document. The intention of insolvency act indemnity insurance is to afford indemnity in respect of the risks set out in the policy schedule - so it’s important to check any draft to determine that it is correct. The duration of this non-investment insurance contract is in perpetuity unless the policy says something to the contrary. Adequacy in this regard should be checked.Insolvency Act indemnity insurance: Important aspects and benefits:
The insurance will normally cover where someone claims to be entitled to the benefit of the specified risks, stated in the insolvency act indemnity insurance schedule. Insolvency Act indemnity insurance Cover normally includes- All sums paid with consent in writing from the insurance company to free the land from the risks specified in the insolvency act policy.
- The cost of works (including architects’ and surveyors’ fees) for the purpose of the development begun, or contracted for, 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.
- Market value reduction due to the successful enforcement of the risks specified in the insolvency act policy.
- All ancillary costs and expenses incurred by the Insured with the written consent of the relevant insurer
- Reimbursement for compensation incurred in any proceedings in respect of the risks specified in the insolvency act indemnity insurance, as well as legal and associated costs.
You also need to be sure that the answers on the application form are accurate. However remote the likelihood of a claim on the bank insurance policy might be you can be sure 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 - Further 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 content set out above is in relation to properties in England and Wales.