Insolvency Act Indemnity Insurance Lender conveyancing requirements
Accord and Chelsea BS, in common with many mortgage companies, dictate their own specific instructions when it comes to insolvency act indemnity insurance. This page is designed to help domestic conveyancing firms on the different lender approved list of panel lawyers where the title for the the property to be mortgaged includes insolvency act. Solicitors should still check the Council of Mortgage Lenders’ handbook requirements for each mortgage company, whether it be Coventry BS, HSBC or Virgin Money. The information 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 bank 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 not be compromised under the provisions of the Insolvency (No 2) Act 1994 against their security being set aside. Where you are unable to provide an unconditional certificate of title, 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 at an apparent undervalue.
About Insolvency Act Indemnity Insurance
Many property lawyer throughout the country regularly recommend Insolvency Act insurance owing to a proposed or existing transfer at undervalue or deed of gift including gifts of money towards the buying of a property. The potential 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 premises.
Halifax and Birmingham Midshires like many banks, instructions are such that where insolvency act indemnity insurance is to be put on risk:
- the insolvency act indemnity insurance policy must be effected without charge to the lender
- the insolvency act indemnity insurance policy should not incorporate conditions that you know would invalidate or prejudice the interests of the bank
- the insolvency act indemnity insurance policy should always be for the benefit of the bank and, wherever possible, for the benefit of the borrower and any future registered proprietor or mortgage company. Where the borrower will not be covered by the insolvency act indemnity insurance policy, you must advise the borrower of this fact.
- your practice are responsible for approving the terms of the insolvency act policy on behalf of the lender
- your practice must explain to the borrower that the borrower will need to comply with any conditions of the insolvency act indemnity insurance policy and that the mortgagor should notify the lender of any notice or potential claim in respect of the policy
- the limit of indemnity must meet the requirements for the lender (see UK Finance Lenders’ Handbook Part 2 )
- your firm is obliged to disclose to the insurer all relevant information which you have obtained
- your practice must supply 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 might be necessary if there is supplemental borrowing against the mortgaged property
| Lender | Requirement |
|---|---|
| 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. |
| April Mortgages | An amount at least equal to the mortgage advance. |
| 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. |
| Coutts Finance | The open market value of the property according to the valuation report. |
| Coventry Building Society | Minimum of the value of the property. |
| DB UK Bank | An amount at least equal to the mortgage advance or credit limit, whichever the higher. The policy must be assignable |
| Dudley Building Society | Purchase price or valuation, whichever is higher. |
| Family Building Society | An amount at least equal to the mortgage advance. |
| Furness Building Society | Property valuation or purchase price, whichever the greater. |
| Holmesdale Building Society | 110% |
| Investec | The open market value of the property according to the valuation report. |
| Manchester Building Society | Purchases- higher of the Purchase price & valuation Re-mortgages- Loan x 115%. |
| ModaMortgages | An amount at least equal to 110% of the mortgage valuation. |
| 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. |
| Secure Trust Bank | An amount at least equal to the market value. 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). |
| 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 - Virgin One | An amount equal to the value of the property. |
| Vida Homeloans | It must be for a minimum of 110% of the purchase price or valuation, whichever is greater |
General Insolvency Act indemnity insurance points to consider
The extent of the terms for insolvency act indemnity insurance are explained in the policy paperwork. Property lawyers should point your non-lender client to the insolvency act indemnity insurance policy document. Insolvency Act indemnity insurance is devised to afford indemnity in respect of the risks set out in the policy schedule - so it is essential check the schedule to ensure it is in order. The duration of this non-investment insurance contract is in perpetuity unless the policy says something to the contrary. It is well worth checking that the time frame is correct.Significant features and benefits of insolvency act indemnity insurance :
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- 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.
- All ancillary costs and expenses incurred by the Insured with the written consent of the relevant insurance company
- Reimbursement for compensation incurred in any proceedings regarding the risks specified in the insolvency act insurance, as well as incurred costs and expenses.
- Diminution in value due to the successful enforcement of the risks specified in the insolvency act policy.
- The cost of works (including architects’ and surveyors’ fees) for the purpose of the development begun, or contracted for, 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.
- Money paid with the written consent of the insurance company to free the property from the risks specified in the insolvency act insurance.
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 certain that the insurer will check the details on any proposal form very carefully before any claim is admitted.
Insolvency Act Indemnity Insurance has limitations - Other considerations
Insolvency Act insurance may satisfy lenders such as RBS or Barclays 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 content set out above is in relation to properties in England and Wales.