Mortgage Company conveyancing panel requirements re Insolvency Act Indemnity Insurance
Barclays and Halifax, like the majority of banks, set their own specific instructions when it comes to insolvency act indemnity insurance. The content herein aims to help property law solicitors on the numerous lender conveyancing panel where the title to be charged includes insolvency act. Lawyers are advised to familiarise themselves with the Council of Mortgage Lenders’ handbook requirements for each lender, for example Birmingham Midshires, Yorkshire Bank Home Loans or Santander. 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?
Undertaking property work as a conveyancing lawyer on a bank panel, you must notify to the mortgage company 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 within five years of the proposed mortgage. You need to be sure that the mortgage company 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. Where you are unable to provide an unconditional 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 with the potential of being regarded at an undervalue.
About Insolvency Act Indemnity Insurance
Thousands of property lawyer throughout the country regularly 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 loss arises because if the person who transferred or “gifted” the premises (or the money) becomes insolvent their Trustee in Bankruptcy could set aside the transfer and claim an interest in the premises.
Natwest and Leeds Building Society as with many mortgage companies, requirements are that where insolvency act indemnity insurance is to be put on risk:
- the insolvency act indemnity insurance policy needs to be for the benefit of the lender and, if possible, for the benefit of the borrower and any subsequent owner or mortgage company. If the borrower will not be covered by the insolvency act indemnity insurance policy, the mortgagor must be advised accordingly.
- the insolvency act indemnity insurance policy should not contain terms which you are aware would invalidate or compromise the interests of the mortgage company
- you must explain to the mortgagor that the borrower is obliged to comply with any conditions of the insolvency act indemnity insurance policy and that the mortgagor should notify the mortgage company of any notice or potential claim in relation to the insurance
- the insolvency act indemnity insurance policy must be effected at no charge to the lender
- 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 send a copy 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 might be required if there is supplemental lending against the security of the property
- you must approve the terms of the insolvency act policy on behalf of the bank
- you is required to disclose 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. |
| Adam & Company International | The open market value of the property according to the valuation report. |
| Aldermore Bank | 110% of the purchase price or valuation, whichever is greater. 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). Where a property is being sold at undervalue and an equity gift is being provided, the conveyancer must ensure the seller obtains an Insolvency Act Indemnity Insurance Policy and provides evidence to you, so that you are comfortable an appropriate policy is in place to Aldermore’s satisfaction. This indemnity insurance aims to cover Aldermore against any future claims by creditors of the seller that may challenge the sale. |
| Bank of Scotland | Not less than mortgage advance plus 10% |
| Chelsea 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. |
| Coutts Finance | The open market value of the property according to the valuation report. |
| Family Building Society | An amount at least equal to the mortgage advance. |
| JPMorgan | 110% of principal sum. |
| Landmark | 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. |
| LendInvest | An amount at least equal to the valuation of the property. |
| 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 Express | Amount of loan + 15% |
| National Counties Building Society | An amount at least equal to the mortgage advance. |
| Nedbank | You are to refer to us for specific instructions on any matter involving indemnity insurance. |
| New Street Mortgages | Must be for a minimum of 110% of the purchase price or valuation whichever is the greatest. |
| Swansea Building Society | Purchase price or market valuation whichever is the higher |
| Together Personal Finance | Minimum of £2,000,000.00 per claim. |
| Yorkshire Bank | Open market value of property. |
| Yorkshire 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. |
General Insolvency Act indemnity insurance points to consider
The extent of the terms for insolvency act indemnity insurance are identified in the policy paperwork. Property lawyers are obliged to point your non-lender client to the insolvency act indemnity insurance policy paperwork. Insolvency Act indemnity insurance is devised to afford indemnity in respect of the risks specified in the policy schedule - so it is essential check the document to ensure it is as it should be. The lifetime of this non-investment insurance agreement is in perpetuity unless the policy says something to the contrary. Adequacy in this regard should be checked.Insolvency Act Contingency insurance: Important characteristics and benefits:
Protection via such a policy is to cover the risk of third parties looking to enforce rights that can affect the use of a property. Insolvency Act indemnity insurance Cover normally includes- Liability for damages or compensation incurred in any action concerning the risks specified in the insolvency act policy, including fees of a legal nature.
- All sums paid with consent in writing from the insurance company to free the property from the risks specified in the insolvency act indemnity insurance.
- Market value reduction resulting from the successful enforcement of the risks specified in the insolvency act insurance.
- All other costs and expenses incurred by the Insured with the written consent of the relevant insurance company
- 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.
- The cost of works (including architects’ and surveyors’ 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 order.
You also need to be sure that the answers on the application form are correct. Regardless of how remote a claim on the mortgage company insurance policy might be you can rest assured that the insurer will check the details on any proposal form thoroughly prior to any claim being paid out.
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.