Indemnity Insurance of Insolvency Act Mortgage Company conveyancing obligations
Coventry BS and Birmingham Midshires, as with most lenders, have their own requirements when it comes to insolvency act indemnity insurance. The content herein aims to help property law solicitors on the numerous mortgage company approved list of panel lawyers where the title for the the property to be mortgaged incorporates insolvency act. It is not a substitute for checking the CML handbook requirements for each lender, be it RBS, Natwest or Barnsley BS. The information on this page is not focused on insolvency act indemnity insurance requirements.
Need help with insolvency act indemnity insurance from your lender?
Undertaking property work as a conveyancing practitioner 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 within 5 years of the proposed home loan. You need to be sure that the bank will not be compromised under the provisions of the Insolvency (No 2) Act 1994 against their security being set aside. If 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 checks against all parties to any deed of gift or transaction at an apparent undervalue.
About Insolvency Act Indemnity Insurance
Insolvency Act Cover is normally needed owing to a proposed or existing transfer at undervalue or deed of gift including gifts of money towards the buying of a property. 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 residence.
Godiva Mortgages and Accord like most mortgage companies, obligations require that where insolvency act indemnity insurance is to be taken out:
- the insolvency act indemnity insurance policy must be effected at no charge to the mortgage company
- your firm must spell out 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 mortgage company of any notice or potential claim in respect of the policy
- your practice must approve the terms of the insolvency act policy on behalf of the mortgage company
- your firm must reveal to the insurer all relevant information which you have obtained
- the insolvency act indemnity insurance policy should not incorporate terms that you know would invalidate or compromise the interests of the mortgage company
- the insolvency act indemnity insurance policy must be in favor of the mortgage company and, if possible, for the benefit of the borrower and any future registered proprietor or lender. If the mortgagor will not be covered by the insolvency act indemnity insurance policy, the borrower should be advised accordingly.
- the limit of indemnity must satisfy the requirements for the mortgage company (see UK Finance Lenders’ Handbook Part 2 )
- you must provide a duplicate of the insolvency act indemnity insurance to the mortgagor and explain to the borrower why the insolvency act indemnity insurance policy was effected and that additional insurance might be mandatory if there is supplemental lending against the mortgaged property
| Lender | Requirement |
|---|---|
| April Mortgages | An amount at least equal to the mortgage advance. |
| Bank of Scotland | Not less than mortgage advance plus 10% |
| Barclays plc | Higher of purchase price or valuation |
| Bradford & Bingley | Amount of loan + 15% |
| 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. |
| Clydesdale Bank | Open market value of property. |
| First Direct | The value of the insurance must be for at least the full 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. |
| Kensington Mortgage | Must be for a minimum of 110% of the purchase price or valuation whichever is the greatest. |
| 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). |
| Magellan Homeloans | At least equal to the value of the property |
| National Westminster Bank | An amount equal to the value of the property. |
| New Street Mortgages | Must be for a minimum of 110% of the purchase price or valuation whichever is the greatest. |
| Rooftop Mortgages | The value of the property for mortgage purposes as disclosed in the valuation. |
| Saffron Building Society | Higher of purchase price or valuation. 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). |
| Santander | The purchase price or (if lower) 110% of the mortgage advance. |
| Skipton Building Society | For lender only cover we will accept a minimum of 110% (index-linked) of the amount of the loan. |
| Tandem Bank | An amount at least equal to 110% of the purchase price or valuation – whichever is the greater. |
| 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 document. Property lawyers are obliged to point the borrower to the insolvency act indemnity insurance policy paperwork. Insolvency Act Contingency insurance is designed to grant indemnity in respect of the risks specified in the policy schedule - so it’s important to check any draft to ensure it is in order. The continuance of this non-investment insurance contract is in perpetuity unless otherwise stated in the insolvency act indemnity insurance policy. It is well worth checking that the time frame is correct.Important aspects and benefits of insolvency act Contingency insurance :
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 Cover normally includes- The cost of 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 indemnity insurance, to the extent that such costs are rendered abortive by court decision.
- Money paid with consent in writing from the insurance company to liberate the land from the risks specified in the insolvency act policy.
- The cost 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.
- Market value reduction due to the successful enforcement of the risks specified in the insolvency act indemnity insurance.
- Liability for damages or compensation incurred in any action in respect of the risks specified in the insolvency act policy, including fees of a legal nature.
- All other costs and expenses incurred by the Insured with consent in writing from the relevant insurer
As with any insurance policy, all material information needs to be disclosed to the insurance company at the outset and throughout the policy term, otherwise the insolvency act policy will be invalidated.
Additional considerations for insolvency act indemnity insurance
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. Information contained within this webpage is for general information for Regulated law firms in England and Wales on the the lender approved panel, it does not constitute advice for members of the public who should contact their lawyer for advice relating to the lender indemnity insurance. Whilst we endeavour to keep the information up to date and correct we do not make any representation or warranties of any kind about its completeness, accuracy, reliability or suitability. Any reliance you place on the information is strictly at your own risk. Lexsure will not be liable for any direct or indirect loss or damage arising out of or in connection with the use of this information.
An important exclusion applying to most insolvency act Policies is if you make any contact with any party who might cause a claim under the Policy, it can invalidate the cover.
The above information covers to properties in England and Wales.