Indemnity Insurance of Absentee Freeholder Bank conveyancing obligations
Barnsley BS and Lloyds TSB, as with many banks, dictate their own specific instructions when it comes to absentee freeholder indemnity insurance. The purpose of this page to assist conveyancing practitioners on the different lender solicitors panel where the title to be charged contains absentee freeholder. It is not a alternative for checking the CML handbook requirements for each lender, whether it be Bank of Scotland, Nationwide or Yorkshire Bank Home Loans. The content on this page is not focused on absentee freeholder indemnity insurance requirements.
Need help with absentee freeholder indemnity insurance from your lender?
As a solicitor on a mortgage company panel you must notify to the mortgage company (see PII of the UK Finance Lenders’ Handbook) if it becomes apparent that the freeholder is either missing or insolvent. If the lender are to lend, they may require missing freeholder indemnity insurance. Banks’ approach is changing however and an increased number of mortgage companies have tightened their requirements on the minimum lease term before they are prepared to lend. LENDER monitor has identified since 2008 a changing attitude towards in absentee freeholder insurance. A number of lendersmortgage companies in the past stated that, they would have lent on an missing freeholder, whereas they will no longer do so. See 5.14.15 to see if the mortgage company accept indemnity insurance if the freeholder is absent or insolvent. Examples of such requirements as follows:
| Lender | Requirement |
|---|---|
| Atom Bank | Yes, provided you are satisfied that such insurance is fully comprehensive and is a solution to the difficulty identified and you can give an unqualified Certificate of Title. You must retain a copy of any insurance policy on your file. |
| Chelsea Building Society | Yes provided you are satisfied that such insurance is a solution to the difficulty identified and you can give an unqualified Certificate of Title. You must retain a copy of any insurance policy on your file. |
| GE Money | GE Money Home Lending has withdrawn from the UK mortgage market. |
| Harpenden Building Society | No |
| Manchester Building Society | Yes, the limit of indemnity must equal the purchase price or valuation. |
| Principality Building Society | Yes - provided you are satisfied that such insurance is a solution to the problem identified and you can give an unqualified Certificate of Title. The conditions in section 9 must also be satisfied. You must provide us with a copy of the Policy and retain a copy of the Policy on your file. |
| Rooftop Mortgages | Please refer the property specific details to the address shown on the mortgage offer. |
About Absentee freeholder Indemnity Insurance
Thousands of conveyancing practitioner across the UK regularly rely on absentee freeholder policies to help move the conveyancing process when the freeholder or freeholder of land or property is insolvent, unresponsive or where Bona Vacantia applies in relation to defunct companies. This impacts the ability to pay ground rent and obtain consent to lease assignments and alterations to the residence. The loss arises because the freeholder may request ground rent or try to forfeiture of the lease claiming breach of covenant should they subsequently appear.
Natwest and Santander as with the majority of lenders, obligations require that where absentee freeholder indemnity insurance is to be taken out:
- the level of indemnity must satisfy the requirements for the bank (See Part II Handbook requirements )
- your firm must approve the terms of the absentee freeholder policy on behalf of the bank
- your practice must provide a copy of the absentee freeholder indemnity insurance to the mortgagor and explain to the mortgagor why the absentee freeholder indemnity insurance policy was effected and that a further policy could be necessary if there is supplemental borrowing against the mortgaged property
- the absentee freeholder indemnity insurance policy should not incorporate terms that you are aware would void or prejudice the interests of the lender
- the absentee freeholder indemnity insurance policy must be placed on risk without expense to the bank
- your practice is obliged to reveal to the insurer all relevant information which you have acquired
- the absentee freeholder indemnity insurance policy must be in favor of the mortgage company and, wherever possible, for the benefit of the borrower and any subsequent registered proprietor or lender. If the borrower will not be protected by the absentee freeholder indemnity insurance policy, you must advise the mortgagor of this fact.
- your practice must spell out to the mortgagor that the borrower must comply with any conditions of the absentee freeholder indemnity insurance policy and that the mortgagor should notify the lender of any notice or potential claim in relation to the policy
| Lender | Requirement |
|---|---|
| Atom Bank | At least the open market value of the property according to the valuation report. |
| Bank of Scotland | The value of the property. |
| Britannia | Cover to the full value of the property. |
| Capital Home Loans | An amount which is at least equal to the value or the purchase price of the property, whichever is the higher |
| 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. |
| Coutts & Co | The open market value of the property according to the valuation report. |
| GE Money | GE Money Home Lending has withdrawn from the UK mortgage market. |
| Habito | Higher of purchase price or valuation |
| Hampden | The open market value of the property according to the valuation report. |
| Handelsbanken | Purchase price or 110% of mortgage advance, whichever is the greater. |
| Harpenden Building Society | 110% of mortgage advance |
| Intelligent Finance | 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. |
| Manchester Building Society | Purchases- higher of the Purchase price & valuation Re-mortgages- Loan x 115%. |
| Paragon Residential | An amount at least equal to the stated 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. |
| Reliance Bank | £1,000,000.00 |
| Rooftop Mortgages | The value of the property for mortgage purposes as disclosed in the valuation. |
| Scottish Widows | The value of the property. |
| Tandem Bank | An amount at least equal to 110% of the purchase price or valuation – whichever is the greater. |
| The Mortgage Works | The full purchase price/value of the property whichever is higher |
Non lender-specific considerations
The extent of the terms for absentee freeholder indemnity insurance are explained in the policy paperwork. Conveyancing solicitors should direct your non-lender client to the absentee freeholder indemnity insurance policy document. The intention of absentee freeholder indemnity insurance is to afford indemnity in respect of the risks specified in the policy schedule - so it is essential check the schedule to determine that it is as it should be. 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.Important characteristics and benefits of absentee freeholder Contingency insurance :
The policy will normally cover where someone claims to be entitled to the benefit of the specified risks, stated in the absentee freeholder indemnity insurance schedule. Absentee Freeholder indemnity insurance Policies should be checked for the following- Money paid with the written consent of the insurance company to free the property from the risks specified in the absentee freeholder indemnity insurance.
- Cover for compensation incurred in any proceedings concerning the risks specified in the absentee freeholder insurance, as well as solicitors charges.
- The out of pocket expenses 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.
- All ancillary costs and expenses incurred by the Insured with consent in writing from the relevant insurance company
- Market value reduction resulting from the successful enforcement of the risks specified in the absentee freeholder indemnity insurance.
- 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 absentee freeholder insurance, to the extent that such costs are rendered abortive 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 absentee freeholder policy will not be valid.
Absentee Freeholder 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 absentee freeholder insurance may be adequate for your client.WhenIBought
Was the freeholder already absent when you bought, but the practical difficulties have only emerged years later? You may now need consent, insurance information or replies to your buyer's enquiries. Visit WhenIBought's absent freeholder page to consider what you understood at purchase, including any explanation of indemnity insurance, and tell us about the problem you face now.
The above information is in relation to properties in England and Wales.