Insolvency Act Indemnity Policy

neilio

I have two questions.

1. I’m selling my flat. I bought it as shared ownership six years ago. Since then, I got married. I staircased to 100% ownership two years ago. As part of the remortgaging and staircasing process, I undertook an equity transfer in order for my husband to be added to the Lease and for the mortgage to be in both our names as Joint Tenants. Now, as we prepare the sell, the purchaser solicitor appears unhappy that my husband was added to the Lease and is requesting an Insolvency Act Indemnity Policy. I’m trying to understand why this might be required but I can’t get my head around it, although I can see it has something to do with gifting the equity to someone and risk of bankruptcy or something, but why would this affect the buyer? My solicitor has asked me to “shed some light” on this as she currently doesn’t believe there is any risk, but I don’t know how much more light there is to shed or what they think I’m hiding. What would this indemnity policy be for?

2. I’ve already exchanged contracts on the house I am buying (because it is a new build and I was required to exchange six months ago, but I’m yet to receive legal notice to complete) and I have the mortgage approval. My flat sale is financing the house purchase. I was originally due to sell for enough that I’d be able to afford the house, but I lost the buyer after three months of wasting my time, and have had to settle for a new buyer at a much lower price. This means I am £18,000 short of being able to afford the house. My parents have agreed to gift me the £18,000 to make up the difference. I haven’t yet informed my solicitor (different solicitor to the one conveying my flat sale) that my parents are gifting me the cash. On the back of item 1 above, I’m concerned that a gift of cash from my parents might set alarm bells ringing and throw a spanner into the works. Could this solicitor require an Insolvency Act Indemnity Policy as well? Could it invalidate the mortgage offer I already have?

NB: When I bought the shared ownership flat six years ago, my parents gifted me £12,000 for the deposit, but there was never any mention of an Insolvency Act Indemnity Policy then.

davidmcn

You need to get your lender's agreement to the gifted deposit from your parents - ask now in case you need to start from scratch with another lender.

Your solicitor ought to understand the concept of indemnity policies covering insolvency, I have no idea why they think you're able to give them advice about it! The principle is that they cover the risk of creditors trying to claw back the money if it turns out that the donor was insolvent at the time of the gift.

eddddy

I guess the buyer's solicitor could be concerned that something hasn't happened at 'market value' - i.e. there was an element of gifting. For example:

- You gave half your flat to your husband at less than market value, (whilst you were insolvent) - i.e. a partial gift

- Your husband gave you more than market value for half your flat (whilst he was insolvent) - i.e. a partial gift

In either case, if the flat is sold, the buyer could end up having the flat taken away from them.

Perhaps your solicitor is rather clumsily asking you explain who paid what, when the equity was transferred and you staircased to 100%.

But it would be sensible to ask your solicitor to clarify their request, before assuming this.

neilio

Regarding point number 2. I just realised that in actuality the sale of my flat will be able to finance the deposit required on the new property. It is the stamp duty I wouldn’t be able to fully afford. In fact I’ll be able to afford some of the stamp duty from the funds from the sale, but the majority would be paid by the gifted funds. Would that make any difference?