Mortgage Company conveyancing panel requirements re Insolvency Act Indemnity Insurance
HSBC and Natwest, in common with most mortgage companies, have their own requirements when it comes to insolvency act indemnity insurance. This page is designed to help conveyancing firms on the different mortgage company approved list of panel lawyers where the title to be charged contains insolvency act. Lawyers are advised to familiarise themselves with the Council of Mortgage Lenders’ handbook requirements for each lender, be it Nationwide, Skipton or Godiva Mortgages. 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?
Practicing as a conveyancing lawyer on a lender panel, you must report 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 loan. You need to be satisfied 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 not able to submit an unconditional certificate of title, 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 with the potential of being regarded at an undervalue.
About Insolvency Act Indemnity Insurance
Thousands of conveyancer throughout the country regularly rely on Insolvency Act policies owing to an expected or existing transfer at undervalue or deed of gift including gifts of money towards the purchase 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 property.
Accord and Leeds Building Society like most banks, requirements are that where insolvency act indemnity insurance is to be taken out:
- your practice is obliged to reveal to the insurer all relevant information which you have obtained
- your firm must explain to the mortgagor that the borrower will need 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 relation to the policy
- the insolvency act indemnity insurance policy should be effected at no charge to the bank
- the insolvency act indemnity insurance policy must not contain terms that you know would invalidate or prejudice the interests of the bank
- your firm must provide a duplicate 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 may be mandatory if there is further lending against the security of the property
- the insolvency act indemnity insurance policy should always be in favor of the mortgage company and, if possible, in favour of the borrower and any next registered proprietor or mortgage company. Where the mortgagor will not be covered by the insolvency act indemnity insurance policy, you must advise the mortgagor of this fact.
- the level of indemnity must satisfy the requirements for the bank (See Part II Handbook requirements )
- your firm are responsible for approving the terms of the insolvency act policy on behalf of the lender
| Lender | Requirement |
|---|---|
| Accord Mortgages | 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. |
| 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 |
| Birmingham Midshires | An amount equal to at least 110% of the purchase price or value, whichever is higher. |
| Britannia | Cover to the full value of the property. |
| 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. |
| Foundation Home loans | An amount equal to 110% of the valuation or purchase price - whichever is the greater. |
| Holmesdale Building Society | 110% |
| Precise Mortgages | An amount at least equal to 110% of the mortgage valuation. |
| Principality Building Society | Full market value of the property is preferred but if this is not available we will accept the loan advance amount as minimum. You must approve the policy on our behalf. The estimated property value is stated in the Mortgage Offer in remortgage cases. Otherwise it will be stipulated in the Valuation. |
| Scottish Building Society | Amount of mortgage plus 25%. |
| Skipton Building Society | For lender only cover we will accept a minimum of 110% (index-linked) of the amount of the loan. |
| TSB | The value of the property |
| RBS - Direct Line | 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. |
| Topaz Finance | Valuation or purchase price, whichever is higher. The policy must always benefit the borrower and any subsequent owner or mortgagee - the policy must be index linked. |
| Vida Homeloans | It must be for a minimum of 110% of the purchase price or valuation, whichever is greater |
| Whistletree | The value of the property |
General Insolvency Act indemnity insurance points to consider
The extent of the terms for insolvency act indemnity insurance are set out in the policy document. Conveyancing Practitioners are obliged to point the borrower to the insolvency act indemnity insurance policy itself. The intention of insolvency act indemnity insurance is to grant indemnity in respect of the risks specified in the policy schedule - so you should check any draft to ensure it is correct. The duration of this non-investment insurance contract 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:
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- All ancillary costs and expenses incurred by the Insured with the written consent of the relevant insurance company
- Money paid with consent in writing from the insurance company to free the property from the risks specified in the insolvency act insurance.
- Liability for damages or compensation incurred in any proceedings in respect of the risks specified in the insolvency act insurance, including legal and associated costs.
- Loss in market value due to the successful enforcement of the risks specified in the insolvency act insurance.
- The cost of altering or demolishing 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, 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 decision.
Don't forget to consider what is not included in the insolvency act insurance e.g. does the policy cover any property that has been altered within the 12 months prior to the commencement of the policy? Does it cover legal costs?
Insolvency Act Indemnity Insurance has limitations - Additional 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.