Indemnity Insurance of Insolvency Act Mortgage Company conveyancing instructions
Birmingham Midshires and Lloyds TSB, in common with most banks, dictate their own requirements when it comes to insolvency act indemnity insurance. This page is designed to help property law solicitors on the different bank approved list of panel lawyers where the title for the the property to be mortgaged contains insolvency act. It is not a alternative for checking the CML handbook requirements for each lender, be it Godiva Mortgages, Halifax or Skipton. The content on this page is not focused on insolvency act indemnity insurance requirements.
Need help with insolvency act indemnity insurance from your lender?
In your capacity as a conveyancing lawyer on a lender panel, you must disclose 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 inside 5 years of the proposed charge. You must be satisfied that the bank 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. Where you are not able to issue an unconditional COT, 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 with the potential of being regarded at an undervalue.
About Insolvency Act Indemnity Insurance
Insolvency Act Cover is typically needed owing to an expected 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 property (or the money) becomes insolvent their Trustee in Bankruptcy could set aside the transfer and claim an interest in the residence.
Bank of Scotland and RBS as with many banks, obligations require that where insolvency act indemnity insurance is effected:
- your practice are responsible for approving the terms of the insolvency act policy on behalf of the bank
- your firm must supply a copy 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 a further policy could be necessary if there is supplemental borrowing against the mortgaged property
- the insolvency act indemnity insurance policy should always be for the benefit of the bank and, wherever possible, for the benefit of the mortgagor and any next owner or mortgage company. If the borrower will not be protected by the insolvency act indemnity insurance policy, you must advise the mortgagor of this fact.
- your practice must disclose to the insurer all relevant information which you have acquired
- the level of indemnity must satisfy the requirements for the bank (See Part II Handbook requirements )
- your practice is duty bound to explain to the mortgagor that the borrower is obliged 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 not contain conditions that you know would void or compromise the interests of the mortgage company
- the insolvency act indemnity insurance policy should be effected at no charge to the lender
| Lender | Requirement |
|---|---|
| Adam & Company | The open market value of the property according to the valuation report. |
| Bank of Ireland | The limit of indemnity must be an amount not less than the market value of the property. |
| 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. |
| Coventry Building Society | Minimum of the value of the property. |
| Cynergy Bank | The market value of the property. |
| Fleet Mortgages | An amount at least equal to the valuation of the property. |
| Halifax | An amount at least equal to the mortgage advance. |
| 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. |
| Keystone Property Finance | An amount equal to 110% of the valuation or purchase price - whichever is the greater |
| Lloyds | The value of the property. |
| MPowered Mortgages | Either the minimum reinstatement value or where there is no valuation the market value/purchase price figure (whichever is higher). |
| Manchester Building Society | Purchases- higher of the Purchase price & valuation Re-mortgages- Loan x 115%. |
| National Westminster Bank | An amount equal to the value of the property. |
| 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. |
| Sainsbury's Bank | An amount equal to the higher of the value of the property or the purchase price. |
| RBS - Virgin One | An amount equal to the value of the property. |
| Tipton Coseley Building Society | Minimum of mortgage advance. |
General Insolvency Act indemnity insurance points to consider
The full terms, conditions and exclusions for insolvency act indemnity insurance are shown in the policy document. Conveyancing solicitors should point your non-lender client to the insolvency act indemnity insurance policy itself. Insolvency Act Contingency insurance is devised to grant indemnity in respect of the risks set out in the policy schedule - so it is essential check the document to determine that 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.Insolvency Act Contingency insurance: Significant aspects and benefits:
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- Cover for compensation incurred in any proceedings regarding the risks specified in the insolvency act indemnity insurance, including solicitors charges.
- All sums paid with the written consent of the insurance company to free the land from 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, prior to 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.
- The out of pocket expenses 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.
- Diminution in value due to the successful enforcement of the risks specified in the insolvency act policy.
- All other costs and expenses incurred by the Insured with the written consent of the relevant insurer
Don't forget to consider what is excluded from the insolvency act policy e.g. does the policy cover any property that has been altered within the 12 months prior to the policy being put on risk? Does it cover legal costs?
Supplemental considerations for insolvency act indemnity insurance
Insolvency Act insurance may satisfy lenders such as Virgin Money or Coventry BS 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.