Lender conveyancing panel requirements re Insolvency Act Indemnity Insurance
Yorkshire Building Society and Natwest, in common with most lenders, dictate their own requirements when it comes to insolvency act indemnity insurance. The purpose of this page to assist domestic conveyancing solicitors on the different bank conveyancing panel where the title for the the property to be mortgaged includes insolvency act. Lawyers are advised to familiarise themselves with the CML handbook requirements for each bank, be it Virgin Money, Santander or RBS. The information on this page is not focused on insolvency act indemnity insurance requirements.
Need help with insolvency act indemnity insurance from your lender?
Being a property lawyer on a lender panel, you must disclose 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 mortgage. You must be satisfied 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. Where you are unable to provide an unqualified COT, you must put in place 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 with the potential of being regarded at an undervalue.
About Insolvency Act Indemnity Insurance
Many property lawyer throughout the UK often rely on Insolvency Act insurance owing to an expected or existing transfer at undervalue or deed of gift including gifts of money towards the buying 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 premises.
Chelsea BS and Nationwide as with the majority of mortgage companies, instructions are such that where insolvency act indemnity insurance is to be taken out:
- you is duty bound to 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 policy
- the insolvency act indemnity insurance policy should always be in favor of the lender and, wherever possible, for the benefit of the mortgagor and any next owner or bank. If the borrower will not be protected by the insolvency act indemnity insurance policy, the borrower must be informed accordingly.
- your firm must reveal to the insurer all relevant information which you have acquired
- you 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 additional insurance might be required if there is supplemental lending against the mortgaged property
- the level of indemnity must meet the requirements for the lender (See Part II Handbook requirements )
- the insolvency act indemnity insurance policy must not contain conditions that you know would void or prejudice the interests of the bank
- your practice must approve the terms of the insolvency act policy on behalf of the lender
- the insolvency act indemnity insurance policy must be effected at no expense to the lender
| Lender | Requirement |
|---|---|
| Bank of China | Cover to full value of the property or the Mortgage Advance, whichever is the higher. |
| Birmingham Bank | Please contact Head of Operations to discuss (Jackie Burchill) |
| Birmingham Midshires | An amount equal to at least 110% of the purchase price or value, whichever is higher. |
| Coventry Building Society | Minimum of the value of the property. |
| Dudley Building Society | Purchase price or valuation, whichever is higher. |
| Foundation Home loans | An amount equal to 110% of the valuation or purchase price - whichever is the greater. |
| ITL Mortgages | Minimum of the 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. |
| 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. |
| 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. |
| 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. |
| Precise Mortgages | An amount at least equal to 110% of the mortgage valuation. |
| Progressive BS | The limit of indemnity insurance should be the purchase price or valuation - whichever is higher. |
| Santander | The purchase price or (if lower) 110% of the mortgage advance. |
| 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. |
| RBS - Direct Line | An amount equal to the value of the property. |
| Together Personal Finance | Minimum of £2,000,000.00 per claim. |
Non lender-specific considerations
The full terms, conditions and exclusions for insolvency act indemnity insurance are shown in the policy paperwork. Conveyancing solicitors are obliged to point the borrower to the insolvency act indemnity insurance policy itself. Insolvency Act indemnity insurance is devised to grant indemnity in respect of the risks set out in the policy schedule - so you should check the document to ensure it is correct. The lifetime of this non-investment insurance agreement is in perpetuity unless otherwise stated in the insolvency act indemnity insurance policy. Again, please check that this is as you expected.Insolvency Act indemnity insurance: Significant aspects and benefits:
This policy would usually provide protection from financial loss that might arise in the event of a third party making a cliam in respect of the risks identified in the policy document. Insolvency Act indemnity insurance Cover normally includes- All ancillary costs and expenses incurred by the Insured with the written consent of the relevant insurance company
- 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.
- Expenses for works (including architects’ and surveyors’ fees) for the purpose of the development commenced, 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 decision.
- Money paid with consent in writing from the insurance company to free the land from the risks specified in the insolvency act policy.
- Cover for compensation incurred in any action in respect of the risks specified in the insolvency act indemnity insurance, as well as solicitors charges.
- Loss in market value due to the successful enforcement of the risks specified in the insolvency act policy.
Don't forget to check what is not included in 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? Does it cover legal costs?
Insolvency Act Indemnity Insurance has limitations - Additional 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 answer.The content set out above is in relation to properties in England and Wales.