Indemnity Insurance due to Gift

jdrummer

I’m nearing exchange of contracts on a property but have recently received a letter from my solicitor saying we require indemnity insurance for Insolvency Act Deed of Gift/Transfer at Undervalue. The solicitors are claiming this is because we have received a gift for our deposited and that the policy is to protect our mortgage lender (nationwide). From what I gather this policy is designed to protect the lender if our Giftor was to go bankrupt and the gift was to be claimed back. Our giftor has however signed a statement saying he retains no interest in the money or property. There was no mention of the insurance in our mortgage offer and Nationwide confirmed to me there are no conditions on the mortgage requiring the insurance and that the signed statement from our Giftor is sufficient. As far as I can work out the policy is therefore unnecessary. The solicitors however stand to gain commission from the £111 policy and £150 fee for setting it up! They are claiming that Natiowide require the insurance because of the CLM handbook section 5.16.3

5.16.3 If you are aware that the title to the property is subject to a deed of gift or a transaction at an apparent undervalue completed within five years of the proposed mortgage then you must be satisfied that we will acquire our interest in good faith and will be protected under the provisions of the Insolvency (No 2) Act 1994 against our security being set aside. If you are unable to give an unqualified certificate of title, you must arrange indemnity insurance (see section 9).

Can anyone shed any light on if the policy is necessary? Is it not a conflict of interest for the solicitor to be gaining commission and fees?

Foxy-Stoat_3

I had to buy an indemnity policy after a transfer of equity, nothing I can do about it.

Your solicitor won't make you buy an indemnity policy if its not needed to gain additional commission.

Foxy-Stoat_3

If you google the "Insolvency (No 2) Act 1994" it states that creditors can reclaim undervalued assets or gifts should the individual go bankrupt within 5 years of the gift or undervalued transaction.

Richard_Webster

I assume you are buying and you had a gift of the deposit for this purchase.

If this is the case the solicitors have got it all wrong.

The quote from the CML Handbook says:

5.16.3 If you are aware that the title to the property is subject to a deed of gift or a transaction at an apparent undervalue completed within five years of the proposed mortgage then you must be satisfied that we will acquire our interest in good faith and will be protected under the provisions of the Insolvency (No 2) Act 1994 against our security being set aside. If you are unable to give an unqualified certificate of title, you must arrange indemnity insurance (see section 9).

The title to the property isn't affected by a gift. This would be the case if the sellers had bought it for less than its real worth within the past 5 years. So it would apply if you were selling and you had bought from parents who had effectively reduced the price to you.

The title to the property is in no way affected by a gift of part of its purchase price by some third party.

jdrummer

Thanks Richard that is as exactly as I had expected but they are refusing to acknowledge this and Nationwide are simply washing there hands of it and accepting whatever the solicitors say. Is there an authority that could back me and help apply pressure?

nuuki9

I'm in the exact same spot.

Nationwide have already offered on the basis of a letter for the gift, but we're now being told by the solicitor that we need to conduct additional checks against the gifter (ID and bankrupcy), and also take out insolvency insurance.

We're somewhat stuck on next steps. We certainly don't want to risk the sale, but taking our unnecessary insurance and spending the 1-2 weeks to get all this done would be a major annoyance.

nuuki9

Having reviewed the specific requirements of 5.16.3, as well as comments here and further details on other sites, I feel I have a pretty good handle on this requirement.

As already noted in this thread, it *explicitly* only covers the gifting of the property title itself, not to gifts contributing to the deposit.

I've gone back to my solicitor to ask for more information, but if they continue to push this, it will start to feel like a bit of a shake down...

I'll report back on progress.

harrys_dad

Why not suggest to your solicitor that if they continue to believe the indemnity policy is needed, and they will not proceed without it, you will get the policy elsewhere under protest. That should clarify if they are just boosting their charges and commission.

nuuki9

harrys_dad wrote: »

Why not suggest to your solicitor that if they continue to believe the indemnity policy is needed, and they will not proceed without it, you will get the policy elsewhere under protest. That should clarify if they are just boosting their charges and commission.

I like the idea, but I'm not sure how useful that would be in - if I was them I'd stick to my guns at that point rather than back down, as to do so on that basis would make it completely clear that it was motivated by some commission etc.

I'm hoping that reasoned discussion demonstrating that I do want to understand the specific requirement, combined with giving them an easy way to back out gracefully, such as due to confusion over circumstances, will work.

Worst case we may be able to call on other assets, but its all extra time and hassle when we could do without it.

Richard_Webster

Ask them to explain how the title to this property is or will be affected by a gift of part of your purchase money from a third party. Refer them to my post in this thread.

Regrettably you may have to get them to get specific confirmation from Nationwide in writing that such a policy is not needed when part of the purchase money is gifted rather than where the seller is selling a property acquired as a gift or at an undervalue by him. This will take ages, I'm afraid. Lenders' mortgage processing staff are not legally qualified and their legal departments don't generally get involved in day to day residential conveyancing issues.

If they do not back down tell the solicitors that you will make a complaint about their behaviour in asking you to pay for an unnecessary policy.

nuuki9

Richard_Webster wrote: »

Ask them to explain how the title to this property is or will be affected by a gift of part of your purchase money from a third party. Refer them to my post in this thread.

Thanks Richard. Will do - will be speaking to them tomorrow, but not feeling massively hopeful...

Richard_Webster wrote: »

Regrettably you may have to get them to get specific confirmation from Nationwide in writing that such a policy is not needed when part of the purchase money is gifted rather than where the seller is selling a property acquired as a gift or at an undervalue by him. This will take ages, I'm afraid. Lenders' mortgage processing staff are not legally qualified and their legal departments don't generally get involved in day to day residential conveyancing issues.

You mean that if they won't back down, we would need to go through these checks with Nationwide? Our broker has been pretty helpful, so they may be able to facilitate getting such a letter turned around more quickly I guess. Its worth asking I suppose...

Out of interest how do these insurance policies work? If we're talking about a nominal amount over a short period, then I may just suck it up.

Richard_Webster wrote: »

If they do not back down tell the solicitors that you will make a complaint about their behaviour in asking you to pay for an unnecessary policy.

Who does one complain to about such things? It feels as if the solicitor calls all the shots in the way the process works, and even in cases where (such as this) it seems fairly clear that their view is incorrect, there's no obvious way to challenge that...