Indemnity Insurance of Insolvency Act Lender conveyancing obligations

Bank of Scotland and Nationwide, as with the majority of banks, dictate their own specific instructions when it comes to insolvency act indemnity insurance. The content herein aims to help domestic conveyancing practitioners on the different mortgage company approved list of panel lawyers where the title for the the property to be mortgaged incorporates insolvency act. Solicitors should still check the Council of Mortgage Lenders’ handbook requirements for each bank, whether it be HSBC, Virgin Money or Birmingham Midshires. 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?


As a conveyancing lawyer on a bank panel, you must disclose to the bank if you are aware that the title to the property was subject to a Insolvency Act or a transaction at an apparent undervalue completed within 5 years of the proposed mortgage. You must be satisfied that the mortgage company 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 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 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 acquisition of a residence. The loss arises because if the person who transferred or “gifted” the premises (or the money) becomes insolvent their Trustee in Bankruptcy could set aside the transfer and claim an interest in the premises.

Yorkshire Building Society and Coventry BS as with many banks, instructions are such that where insolvency act indemnity insurance is to be put on risk:

  • your firm must send a duplicate of the insolvency act indemnity insurance to the mortgagor and explain to the mortgagor why the insolvency act indemnity insurance policy was effected and that additional insurance may be mandatory if there is supplemental lending against the security of the property
  • the minimum level of cover for the policy must satisfy the requirements for the lender (see UK Finance Lenders’ Handbook Part 2 )
  • your practice must approve the terms of the insolvency act policy on behalf of the mortgage company
  • the insolvency act indemnity insurance policy should be effected without expense to the bank
  • the insolvency act indemnity insurance policy must be in favor of the lender and, if possible, in favour of the mortgagor and any next registered proprietor or bank. Where the mortgagor will not be protected by the insolvency act indemnity insurance policy, the mortgagor needs to be informed accordingly.
  • your firm must disclose to the insurer all relevant information which you have acquired
  • you must explain to the mortgagor that the borrower is obliged to comply with any conditions of the insolvency act indemnity insurance policy and that the mortgagor should notify the bank of any notice or potential claim in respect of the policy
  • the insolvency act indemnity insurance policy must not contain terms which you know would invalidate or compromise the interests of the bank
As to the level of cover for the insolvency act indemnity insurance policy (or for that matter any indemnity insurance), consider the following sampling of Section 9.2 of the CML handbook PII requirements for mortgage companies:
Lender Requirement
Bank of Scotland Private
Bradford & Bingley
Darlington Building Society
HSBC UK Bank
Hodge
Legal & General Home Finance
Magellan Homeloans
Molo Finance Buy to Let
Mortgage Agency Services
Mortgage Express
Precise Mortgages
Rooftop Mortgages
Santander
Scottish Building Society
Secure Trust Bank
RBS - Direct Line
Royal Bank of Scotland -Natwest One
Together Personal Finance
Vida Homeloans
Yorkshire Bank

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. Property lawyers 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 is essential check any draft to determine that it is correct. The duration of this non-investment insurance agreement is in perpetuity unless otherwise stated in the insolvency act indemnity insurance policy. Again, please check that this is as you expected.

Significant characteristics and benefits of insolvency act Contingency insurance :

The insurance 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 are likely to cover the following
  • The cost of works (including professional fees) for the purpose of the development commenced, 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 decision.
  • Money paid with the written consent of the insurance company to free the property from the risks specified in the insolvency act insurance.
  • 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.
  • Loss in market value resulting from the successful enforcement of the risks specified in the insolvency act policy.
  • All other costs and expenses incurred by the Insured with consent in writing from the relevant insurer
  • Liability for damages or compensation incurred in any action in respect of the risks specified in the insolvency act insurance, as well as solicitors charges.

Due diligence should extend to checking that the answers on the application form are accurate. Regardless of how remote a claim on the bank insurance policy might be you can certain that the insurer will check the details on any proposal form very carefully prior to any claim being paid out.

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.
Content on this webpage is for general information for conveyancers and solicitors in England and Wales on the the mortgage company approved panel, it does not constitute advice for members of the public who should contact their lawyer for advice relating to the mortgage company indemnity insurance. Whilst we endeavour to keep the information up to date and correct we do not make any representation or warranties of any kind about its completeness, accuracy, reliability or suitability. Any reliance you place on the information is strictly at your own risk. Lexsure will not be liable for any direct or indirect loss or damage arising out of or in connection with the use of this information. An important exclusion applying to most insolvency act Policies is if you make any contact with any party who might cause a claim under the Policy, it can invalidate the cover.

The content set out above is in relation to properties in England and Wales.