Lender conveyancing panel requirements re Insolvency Act Indemnity Insurance
Bank of Scotland and Virgin Money, in common with the majority of banks, have their own requirements when it comes to insolvency act indemnity insurance. This page sets out to enlighten property law firms on the different mortgage company approved list of panel lawyers where the title for the the property to be mortgaged contains insolvency act. Solicitors should still check the Council of Mortgage Lenders’ handbook requirements for each mortgage company, whether it be RBS, Chelsea BS or Godiva Mortgages. The information on this page Is not to be read as insolvency act indemnity insurance advice.
Need help with insolvency act indemnity insurance from your lender?
Practicing as a solicitor on a bank panel, you must disclose to the bank if you are aware that the title to the property was subject to a Insolvency Act or a transaction at an apparent undervalue completed inside five years of the proposed charge. You must be sure that the lender 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 provide an unconditional 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 with the potential of being regarded at an undervalue.
About Insolvency Act Indemnity Insurance
Insolvency Act Insurance is typically required owing to a proposed or existing transfer at undervalue or deed of gift including gifts of money towards the acquisition of a residence. The 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 property.
HSBC and Yorkshire Bank Home Loans like many mortgage companies, requirements are that where insolvency act indemnity insurance is to be taken out:
- the insolvency act indemnity insurance policy must be placed on risk at no cost to the bank
- your firm must supply a duplicate of the insolvency act indemnity insurance to the borrower and explain to the borrower why the insolvency act indemnity insurance policy was effected and that additional insurance could be required if there is additional lending against the mortgaged property
- your practice are responsible for approving the terms of the insolvency act policy on behalf of the lender
- you is duty bound to explain to the mortgagor that the borrower is obliged to adhere to any conditions of the insolvency act indemnity insurance policy and that the borrower should notify the bank of any notice or potential claim in relation to the policy
- the minimum level of cover for the policy must satisfy the requirements for the lender (See Part II Handbook requirements )
- the insolvency act indemnity insurance policy should always be in favor of the mortgage company and, if possible, in favour of the mortgagor and any next registered proprietor or mortgagee. Where the mortgagor will not be protected by the insolvency act indemnity insurance policy, the borrower should be informed accordingly.
- the insolvency act indemnity insurance policy must not incorporate terms that you know would invalidate or prejudice the interests of the mortgage company
- your firm must reveal to the insurer all relevant information which you have gathered
| 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 China | Cover to full value of the property or the Mortgage Advance, whichever is the higher. |
| Bank of Ireland | The limit of indemnity must be an amount not less than the market value of the property. |
| Dudley Building Society | Purchase price or valuation, whichever is higher. |
| Ecology Building Society | An amount equal to at least 110% of the mortgage advance |
| Handelsbanken | Purchase price or 110% of mortgage advance, whichever is the greater. |
| Holmesdale Building Society | 110% |
| Investec | The open market value of the property according to the valuation report. |
| Lloyds TSB Scotland | 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). |
| Masthaven Bank | An amount at least equal to the total mortgage advance. Any indemnity insurance policy must protect the borrowers, any successors in title and any mortgagee. |
| Metro Bank | The open market value of the property according to the valuation report. |
| Molo Finance 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 mortgages. |
| Paragon Residential | An amount at least equal to the stated value of the Property. |
| Paratus | An amount equal to 110% of the valuation or purchase price - whichever is the greater. |
| Platform | 110% of principal sum. |
| The Mortgage Lender | An amount at least equal to the mortgage advance. |
| RBS - Virgin One | An amount equal to the value of the property. |
| Together Personal Finance | Minimum of £2,000,000.00 per claim. |
| 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. |
Insolvency Act Contingency Insurance : Reflections
The extent of the terms for insolvency act indemnity insurance are shown in the policy document. Conveyancing Practitioners are obliged to point the borrower to the insolvency act indemnity insurance policy itself. Insolvency Act indemnity insurance is designed to grant indemnity in respect of the risks specified in the policy schedule - so you should check any draft to ensure it is in order. The lifetime of this non-investment insurance contract is in perpetuity unless the policy says something to the contrary. It is well worth checking that the time frame is correct.Insolvency Act Contingency insurance: Important features 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 Policies are likely to cover the following- All ancillary costs and expenses incurred by the Insured with consent in writing from the relevant insurer
- The cost of altering or demolishing 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 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 begun, or contracted for, prior to proceedings for the enforcement of the risks specified in the insolvency act policy, to the extent that such costs are rendered abortive by court order.
- Money paid with the written consent of the insurance company to free the land from the risks specified in the insolvency act indemnity insurance.
- Reimbursement for compensation incurred in any action concerning the risks specified in the insolvency act policy, as well as fees of a legal nature.
Always consider what is excluded from the insolvency act insurance e.g. does the policy cover any property that has been altered within the year prior to the commencement of the policy? Are legal costs covered?
Insolvency Act Indemnity Insurance has limitations - Additional considerations
Insolvency Act insurance may satisfy lenders such as Nationwide or Yorkshire Building Society and prevent clients from from suffering financially but it cannot compensate for the stress and inconvenience the emotional suffering - after all the value of a home cannot always be measured in cash in the eyes of the owner.The content set out above covers to properties in England and Wales.