Indemnity Insurance of Insolvency Act Mortgage Company conveyancing instructions
Nationwide and Santander, like most mortgage companies, set their own requirements when it comes to insolvency act indemnity insurance. This page is designed to help property law solicitors on the numerous lender solicitors panel where the title to be charged contains insolvency act. It is not a substitute for checking the Council of Mortgage Lenders’ handbook requirements for each bank, whether it be Godiva Mortgages, Barnsley BS or Bank of Scotland. 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?
Being a conveyancing practitioner on a bank panel, you must disclose to the mortgage company where it comes to your knowledge 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 need to be sure that the mortgage company 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 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 typically 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 because if 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.
Lloyds TSB and Coventry BS in common with many banks, requirements are that where insolvency act indemnity insurance is to be put on risk:
- the insolvency act indemnity insurance policy should not incorporate terms that you recognise would invalidate or prejudice the interests of the mortgage company
- the minimum level of cover for the policy must satisfy the requirements for the lender (see UK Finance Lenders’ Handbook Part 2 )
- the insolvency act indemnity insurance policy should always be in favor of the mortgage company and, wherever possible, for the benefit of the borrower and any future registered proprietor or bank. Where the borrower will not be covered by the insolvency act indemnity insurance policy, the mortgagor must be advised accordingly.
- the insolvency act indemnity insurance policy should be placed on risk at no charge to the bank
- your firm is required to disclose to the insurer all relevant information which you have gathered
- 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 a further policy may be required if there is further borrowing against the security of the property
- your practice must point out to the borrower that the borrower will need to comply with any conditions of the insolvency act indemnity insurance policy and that the borrower should notify the lender of any notice or potential claim in relation to the policy
- your practice must approve the terms of the insolvency act policy on behalf of the lender
| Lender | Requirement |
|---|---|
| Adam & Company International | The open market value of the property according to the valuation report. |
| Ahli United Bank | An amount equal to the value of the Mortgaged Property |
| Bank of Ireland | The limit of indemnity must be an amount not less than the market value of the property. |
| Bank of Scotland | Not less than mortgage advance plus 10% |
| Better HomeOwnership | An amount to cover the mortgage advance as a minimum. |
| Coventry Building Society | Minimum of the value of the property. |
| Cynergy Bank | The market value of the property. |
| Habito | Higher of purchase price or valuation |
| Harpenden Building Society | 110% of mortgage advance |
| JPMorgan | 110% of principal sum. |
| Landbay Partners | An amount equal to 100% of the property valuation or purchase price (whichever is greater) plus 10%. |
| 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. |
| LiveMore | An amount equal to the purchase price or value of the property, whichever is higher |
| Mortgage Express (No 2) | [This lender has not published an answer to this question. Please contact the lender.]
|
| New Street Mortgages | Must be for a minimum of 110% of the purchase price or valuation whichever is the greatest. |
| Paratus | An amount equal to 110% of the valuation or purchase price - whichever is the greater. |
| Scottish Building Society | Amount of mortgage plus 25%. |
| Swansea Building Society | Purchase price or market valuation whichever is the higher |
| 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 shown in the policy paperwork. Conveyancing Practitioners should point the borrower to the insolvency act indemnity insurance policy paperwork. The intention of insolvency act indemnity insurance is to provide indemnity in respect of the risks specified in the policy schedule - so it’s important to check the document to ensure it is as it should be. The continuance of this non-investment insurance contract is in perpetuity unless otherwise stated in the insolvency act indemnity insurance policy. Adequacy in this regard should be checked.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- All other costs and expenses incurred by the Insured with consent in writing from the relevant insurer
- Loss in market value resulting from the successful enforcement of the risks specified in the insolvency act insurance.
- Reimbursement for compensation incurred in any action concerning the risks specified in the insolvency act policy, including solicitors charges.
- Money paid with consent in writing from the insurance company to free the property from the risks specified in the insolvency act insurance.
- The cost of altering or taking down 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 started, 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.
As is the case with all conventional insurance, 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.
Insolvency Act Indemnity Insurance has limitations - Additional considerations
Insolvency Act insurance may satisfy lenders such as Yorkshire Bank Home Loans or RBS 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 covers to properties in England and Wales.