Absentee Freeholder Indemnity Insurance Bank conveyancing requirements
Accord and RBS, as with many mortgage companies, set their own specific instructions when it comes to absentee freeholder indemnity insurance. The purpose of this page to assist property law firms on the various lender solicitors panel where the title for the the property to be mortgaged incorporates absentee freeholder. Lawyers are advised to familiarise themselves with the Council of Mortgage Lenders’ handbook requirements for each bank, whether it be Nationwide, Yorkshire Building Society or Leeds Building Society. The information on this page Is not to be read as absentee freeholder indemnity insurance advice.
Need help with absentee freeholder indemnity insurance from your lender?
As a solicitor on a bank panel you must disclose to the lender (see Part 2 of the UK Finance Lenders’ Handbook) if it becomes apparent that the freeholder is either missing or insolvent. If the lender are to lend, they may accept absentee freeholder indemnity policy. In some conveyancing matters a buyer or mortgage company might accept an absent freeholder indemnity insurance but many purchasers or lenders will not accept this as a solution. See 5.14.15 to see if the lender accept indemnity insurance if the freeholder is absent or insolvent. Examples of such requirements as follows:
| Lender | Requirement |
|---|---|
| April Mortgages | Indemnity insurance is required if we agree to lend. Please contact on a case by case basis as per 1.11 |
| Harpenden Building Society | No |
| Manchester Building Society | Yes, the limit of indemnity must equal the purchase price or valuation. |
| Metro Bank | Refer to Mortgage Operations Helpdesk, see 1.11. |
| Mortgage Agency Services | Yes |
| National Counties Building Society | Yes. |
| RBS- First Active | Yes. |
About Absentee freeholder Indemnity Insurance
Missing freeholder Insurance is typically needed when the freeholder or freeholder of land or residence is insolvent, missing or where the company is no longer in existence. This results in an inability to pay ground rent and seek consent to lease assignments and alterations to the premises. The potential loss is that the freeholder may request ground rent or seek forfeiture of the lease claiming breach of covenant should they subsequently emerge.
Godiva Mortgages and Barnsley BS as with most banks, requirements are that where absentee freeholder indemnity insurance is to be taken out:
- your firm must supply a duplicate of the absentee freeholder indemnity insurance to the borrower and explain to the mortgagor why the absentee freeholder indemnity insurance policy was effected and that a further policy may be necessary if there is additional lending against the security of the property
- your firm are responsible for approving the terms of the absentee freeholder policy on behalf of the lender
- you is required to reveal to the insurer all relevant information which you have acquired
- the absentee freeholder indemnity insurance policy must be placed on risk at no cost to the lender
- the absentee freeholder indemnity insurance policy should always be in favor of the lender and, wherever possible, in favour of the mortgagor and any subsequent registered proprietor or mortgagee. If the mortgagor will not be protected by the absentee freeholder indemnity insurance policy, the mortgagor should be informed accordingly.
- your practice is duty bound to point out to the borrower that the borrower must adhere to any conditions of the absentee freeholder indemnity insurance policy and that the mortgagor should notify the bank of any notice or potential claim in respect of the insurance
- the absentee freeholder indemnity insurance policy should not contain conditions that you are aware would void or prejudice the interests of the lender
- the level of indemnity must meet the requirements for the mortgage company (see UK Finance Lenders’ Handbook Part 2 )
| Lender | Requirement |
|---|---|
| April Mortgages | An amount at least equal to the mortgage advance. |
| 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. |
| Bluestone Mortgages | 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. |
| Britannia | Cover to the full value of the property. |
| Clydesdale Bank | Open market value of property. |
| Coutts Finance | The open market value of the property according to the valuation report. |
| Cynergy Bank | The market value of the property. |
| GE Money | GE Money Home Lending has withdrawn from the UK mortgage market. |
| Godiva Mortgages | Minimum of the value of the property. |
| Harpenden Building Society | 110% of mortgage advance |
| Manchester Building Society | Purchases- higher of the Purchase price & valuation Re-mortgages- Loan x 115%. |
| Metro Bank | The open market value of the property according to the valuation report. |
| Mortgage Agency Services | 110% of the purchase price or valuation, whichever is greater |
| National Counties Building Society | An amount at least equal to the mortgage advance. |
| National Westminster Bank | An amount equal to the value of the property. |
| Nationwide Building Society | Purchase Price (valuation if price is at a discount). Contact Issuing Office for advice on a remortgage |
| Paragon Residential | An amount at least equal to the stated value of the Property. |
| RBS - Direct Line One | An amount equal to the value of the property. |
| RBS- First Active | An amount equal to the value of the property. |
| Royal Bank of Scotland -Natwest One | An amount equal to the value of the property. |
Non lender-specific considerations
The full terms, conditions and exclusions for absentee freeholder indemnity insurance are shown in the policy document. Conveyancing solicitors are obliged to direct your non-lender client to the absentee freeholder indemnity insurance policy document. Absentee Freeholder indemnity insurance is devised to afford indemnity in respect of the risks set out in the policy schedule - so it is essential check the schedule to ensure it is in order. The lifetime of this non-investment insurance agreement is in perpetuity unless otherwise stated in the absentee freeholder indemnity insurance policy. Adequacy in this regard should be checked.Absentee Freeholder indemnity insurance: Significant characteristics and benefits:
The policy will normally cover where someone claims to be entitled to the benefit of the specified risks, stated in the absentee freeholder indemnity insurance schedule. Absentee Freeholder indemnity insurance Policies should be checked for the following- Money paid with consent in writing from the insurance company to free the land from the risks specified in the absentee freeholder indemnity insurance.
- Market value reduction resulting from the successful enforcement of the risks specified in the absentee freeholder indemnity insurance.
- The cost of works (including architects’ and surveyors’ fees) for the purpose of the development commenced, prior to proceedings for the enforcement of the risks specified in the absentee freeholder insurance, to the extent that such costs are rendered abortive by court order.
- The out of pocket expenses 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.
- All other costs and expenses incurred by the Insured with consent in writing from the relevant insurance company
- Reimbursement for compensation incurred in any proceedings regarding the risks specified in the absentee freeholder policy, as well as legal and associated costs.
Don't forget to check what is excluded from the absentee freeholder indemnity insurance e.g. does the policy cover any residence that has been altered within the 12 months prior to the policy being put on risk? Are legal costs covered?
Further considerations for absentee freeholder indemnity insurance
Absentee Freeholder 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 absentee freeholder indemnity cover will not necessarily be the answer.The content set out above is in relation to properties in England and Wales.