Indemnity Insurance of Insolvency Act Lender conveyancing instructions
Chelsea BS and Natwest, like the majority of lenders, set their own specific instructions when it comes to insolvency act indemnity insurance. This page is designed to help conveyancing firms on the different bank approved list of panel lawyers where the title to be charged includes insolvency act. Solicitors should still check the CML handbook requirements for each lender, for example Barclays, Skipton or HSBC. 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 conveyancing practitioner on a lender panel, you must disclose to the lender where it comes to your attention that the title to the property was subject to a Insolvency Act or a transaction at an apparent undervalue completed in the past five years of the proposed home loan. You must be sure 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. If you are unable to provide an unconditional certificate of title, you must arrange transfer at undervalue or Insolvency Act indemnity insurance.
You must also obtain clear bankruptcy searches against all parties to any deed of gift or transaction at an apparent undervalue.
About Insolvency Act Indemnity Insurance
Insolvency Act Insurance is typically required owing to a proposed or existing transfer at undervalue or deed of gift including gifts of money towards the acquisition of a property. The potential loss arises where 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 property.
Halifax and Accord as with the majority of mortgage companies, instructions are such that where insolvency act indemnity insurance is to be taken out:
- the insolvency act indemnity insurance policy must not contain terms which you know would void or prejudice the interests of the mortgage company
- your firm is required to reveal to the insurer all relevant information which you have gathered
- the insolvency act indemnity insurance policy must be for the benefit of the lender and, if possible, for the benefit of the borrower and any subsequent owner or bank. If the mortgagor will not be covered by the insolvency act indemnity insurance policy, the mortgagor must be informed accordingly.
- the limit of indemnity must meet 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 borrower and explain to the mortgagor why the insolvency act indemnity insurance policy was effected and that additional insurance might be necessary if there is supplemental borrowing against the mortgaged property
- the insolvency act indemnity insurance policy must be effected without cost to the bank
- your firm is duty bound to point out to the borrower that the borrower must comply with any conditions of the insolvency act indemnity insurance policy and that the borrower should notify the bank of any notice or potential claim in relation to the insurance
- you are responsible for approving the terms of the insolvency act policy on behalf of the bank
| Lender | Requirement |
|---|---|
| Adam & Company International | The open market value of the property according to the valuation report. |
| Allied Irish Bank | At least the amount of the mortgage advance. |
| Coventry Building Society | Minimum of the value of the property. |
| Harpenden Building Society | 110% of mortgage advance |
| LiveMore | An amount equal to the purchase price or value of the property, whichever is higher |
| 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 Express | Amount of loan + 15% |
| National Westminster Bank | An amount equal to the value of the property. |
| Perenna | The higher of the purchase price or valuation. |
| Platform | 110% of principal sum. |
| Rely Mortgages | An amount at least equal to 110% of the mortgage valuation. |
| Scottish Widows | The value of the property. |
| 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. |
| State Bank of India UK | The purchase price or value of the property, whichever is the higher. |
| TSB | The value of the property |
| The Mortgage Lender | An amount at least equal to the mortgage advance. |
| The Mortgage Works | The full purchase price/value of the property whichever is higher |
| 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. |
| Zephyr Mortgages | 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. |
Insolvency Act Contingency Insurance : Reflections
The extent of the terms for insolvency act indemnity insurance are identified in the policy paperwork. Conveyancing solicitors should point your non-lender client to the insolvency act indemnity insurance policy paperwork. The intention of insolvency act indemnity insurance is to grant indemnity in respect of the risks specified in the policy schedule - so it is essential check the document to determine that it is correct. The duration of this non-investment insurance contract is in perpetuity unless the policy says something to the contrary. Again, please check that this is as you expected.Insolvency Act indemnity insurance: Important aspects and benefits:
The policy 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 Policies should be checked for the following- Reimbursement for compensation incurred in any proceedings regarding the risks specified in the insolvency act indemnity insurance, including incurred costs and expenses.
- The cost of 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 policy, to the extent that such costs are rendered abortive by court order.
- Money paid with the written consent of the insurance company to liberate the property from the risks specified in the insolvency act policy.
- Market value reduction resulting from the successful enforcement of the risks specified in the insolvency act insurance.
- All other costs and expenses incurred by the Insured with consent in writing from the relevant insurer
- The out of pocket expenses 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.
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.
Insolvency Act Indemnity Insurance has limitations - Further considerations
There may be consequences arising from the enforcement of the risks identified in the insolvency act policy which are not adequately covered by financial compensation.The content set out above covers to properties in England and Wales.