Indemnity Insurance of Insolvency Act Lender conveyancing obligations
RBS and Lloyds TSB, like the majority of banks, have their own requirements when it comes to insolvency act indemnity insurance. The purpose of this page to assist residential conveyancing solicitors on the various bank conveyancing panel where the title to be charged contains insolvency act. Solicitors should still check the Council of Mortgage Lenders’ handbook requirements for each lender, for example Natwest, Yorkshire Bank Home Loans or Accord. 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?
Being a property lawyer on a lender panel, you must notify to the lender where it comes to your knowledge that the title to the property was subject to a Insolvency Act or a transaction at an apparent undervalue completed within 5 years of the proposed loan. You must 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 not able to provide an unqualified COT, you must arrange transfer at undervalue or Insolvency Act indemnity insurance.
You must also 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 Insurance is typically needed owing to an expected 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 premises (or the money) becomes bankrupt their Trustee in Bankruptcy could set aside the transfer and claim an interest in the property.
Yorkshire Building Society and Chelsea BS like many mortgage companies, obligations require that where insolvency act indemnity insurance is to be put on risk:
- the insolvency act indemnity insurance policy should not contain terms that you recognise would invalidate or compromise the interests of the lender
- you are responsible for approving the terms of the insolvency act policy on behalf of the bank
- the insolvency act indemnity insurance policy needs to be in favor of the lender and, wherever possible, in favour of the borrower and any future registered proprietor or mortgage company. Where the borrower will not be covered by the insolvency act indemnity insurance policy, you must advise the mortgagor of this fact.
- your practice 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 mortgagor should notify the bank of any notice or potential claim in relation to the insurance
- the minimum level of cover for the policy must satisfy the requirements for the lender (see UK Finance Lenders’ Handbook Part 2 )
- your firm must provide a duplicate of the insolvency act indemnity insurance to the mortgagor and explain to the borrower why the insolvency act indemnity insurance policy was effected and that additional insurance could be mandatory if there is additional lending against the security of the property
- your firm is required to disclose to the insurer all relevant information which you have gathered
- the insolvency act indemnity insurance policy must be placed on risk without cost to the lender
| 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. |
| Bank of Ireland | The limit of indemnity must be an amount not less than the market value of the property. |
| Bank of Scotland | Not less than mortgage advance plus 10% |
| Birmingham Midshires | An amount equal to at least 110% of the purchase price or value, whichever is higher. |
| Bradford & Bingley | Amount of loan + 15% |
| Clydesdale Bank | Open market value of property. |
| Coutts Finance | The open market value of the property according to the valuation report. |
| Coventry Building Society | Minimum of the value of the property. |
| Halifax Loans | An amount at least equal to the mortgage advance. |
| Hampden | The open market value of the property according to the valuation report. |
| Holmesdale Building Society | 110% |
| NRAM Ltd | Preference for full market value of the property, but if this level of cover is not available, will accept a minimum of the actual loan amount. You must approve the policy on our behalf. |
| National Counties Building Society | An amount at least equal to the mortgage advance. |
| Paratus | An amount equal to 110% of the valuation or purchase price - whichever is the greater. |
| Parity Trust | An amount equal to at least 110% of the mortgage advance |
| Rely Mortgages | An amount at least equal to 110% of the mortgage valuation. |
| Saffron Building Society | Higher of purchase price or valuation. Any indemnity insurance policy must be for our benefit, that of any transferee/assignee (legal or equitable) of the mortgage and also the borrower(s). |
| Sainsbury's Bank | An amount equal to the higher of the value of the property or the purchase price. |
| St James Place | 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. |
| The Mortgage Works | The full purchase price/value of the property whichever is higher |
Non lender-specific considerations
The extent of the terms for insolvency act indemnity insurance are shown in the policy document. Property lawyers should point your non-lender client to the insolvency act indemnity insurance policy paperwork. Insolvency Act indemnity insurance is devised to grant indemnity in respect of the risks set out in the policy schedule - so it’s important to check the schedule to ensure it is as it should be. The lifetime of this non-investment insurance contract is in perpetuity unless the policy says something to the contrary. Again, please check that this is as you expected.Important aspects and benefits of insolvency act Contingency insurance :
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 Policies should be checked for the following- Diminution in value resulting from the successful enforcement of the risks specified in the insolvency act indemnity insurance.
- Expenses for works (including professional fees) for the purpose of the development commenced, before the commencement of proceedings for the enforcement of the risks specified in the insolvency act policy, to the extent that such costs are rendered abortive by court decision.
- All ancillary costs and expenses incurred by the Insured with the written consent of the relevant insurance company
- All sums paid with consent in writing from the insurance company to liberate the property from the risks specified in the insolvency act 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.
- Cover for compensation incurred in any action regarding the risks specified in the insolvency act insurance, including fees of a legal nature.
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.