Mortgage Company conveyancing panel requirements re Insolvency Act Indemnity Insurance
Chelsea BS and Accord, in common with many lenders, have their own requirements when it comes to insolvency act indemnity insurance. This page sets out to enlighten conveyancing lawyers on the various mortgage company solicitors panel where the title for the the property to be mortgaged contains insolvency act. It is not a alternative for checking the Council of Mortgage Lenders’ handbook requirements for each bank, be it Godiva Mortgages, Nationwide or RBS. 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?
As a solicitor on a lender panel, you must disclose to the mortgage company if you are aware that the title to the property was subject to a Insolvency Act or a transaction at an apparent undervalue completed in the past 5 years of the proposed charge. You need to be satisfied 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. Where you are not able to provide an unqualified certificate of title, you must arrange 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 needed 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 insolvent their Trustee in Bankruptcy could set aside the transfer and claim an interest in the residence.
Halifax and Yorkshire Bank Home Loans like most mortgage companies, instructions are such that where insolvency act indemnity insurance is effected:
- the insolvency act indemnity insurance policy should be placed on risk at no expense to the bank
- your practice must supply 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 a further policy could be mandatory if there is additional borrowing against the mortgaged property
- the insolvency act indemnity insurance policy must be in favor of the lender and, if possible, in favour of the mortgagor and any future registered proprietor or mortgagee. If the borrower will not be protected by the insolvency act indemnity insurance policy, the mortgagor needs to be advised accordingly.
- the insolvency act indemnity insurance policy should not incorporate terms which you recognise would invalidate or prejudice the interests of the bank
- your practice must explain to the borrower that the borrower is obliged 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 respect of the policy
- your firm must approve the terms of the insolvency act policy on behalf of the bank
- your firm is obliged to disclose to the insurer all relevant information which you have acquired
- the level of indemnity must meet the requirements for the lender (See Part II Handbook requirements )
| 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. |
| Coutts & Co | The open market value of the property according to the valuation report. |
| Coutts Finance | The open market value of the property according to the valuation report. |
| Coventry Building Society | Minimum of the value of the property. |
| Hinckley and Rugby | The policy must be for our benefit and for no less than the amount lent to the borrower, including retentions, stage payments and interest. |
| JPMorgan | 110% of principal sum. |
| 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. |
| LendInvest | An amount at least equal to the valuation of the property. |
| M&S Bank | the value of the insurance must be for at least the full value of the property |
| Market Harborough Building Society | Purchase price or valuation - higher of the two |
| 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. |
| Mortgage Agency Services | 110% of the purchase price or valuation, whichever is greater |
| Parity Trust | An amount equal to at least 110% of the mortgage advance |
| Precise Mortgages | An amount at least equal to 110% of the mortgage valuation. |
| 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. |
| The Mortgage Business | An amount at least equal to the mortgage advance/credit limit - whichever is the highest. |
| The Mortgage Lender | An amount at least equal to the mortgage advance. |
| RBS - Direct Line One | 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 extent of the terms 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 specified in the policy schedule - so you should check the schedule to determine that it is in order. The continuance of this non-investment insurance agreement is in perpetuity unless otherwise stated in the insolvency act indemnity insurance policy. It is well worth checking that the time frame is correct.Insolvency Act indemnity insurance: Significant features 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 Policies should be checked for the following- Market value reduction due to 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 started, 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.
- 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.
- All ancillary costs and expenses incurred by the Insured with consent in writing from the relevant insurance company
- Cover for compensation incurred in any proceedings regarding the risks specified in the insolvency act indemnity insurance, including solicitors charges.
- Money paid with consent in writing from the insurance company to free the land from the risks specified in the insolvency act policy.
Always check what is not included in the insolvency act policy e.g. does the policy cover any residence that has been altered within the year prior to the policy being put on risk? Does it cover legal costs?
Other considerations for insolvency act indemnity insurance
Insolvency Act insurance may satisfy lenders such as Lloyds TSB or HSBC 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 above information is in relation to properties in England and Wales.