New policy aims to protect lenders against potential financial losses on the mortgage advance
CLSQ has introduced a new insurance policy designed to address challenges in the conveyancing process for leasehold properties that lack a mortgagee protection clause or have a defective one.
The Lack of Mortgagee Protection Clause policy aims to protect lenders against potential financial losses on the mortgage advance if a lease is forfeited due to reasons such as non-payment of ground rent, service charge issues, breach of covenants, bankruptcy, or insolvency of the borrower, or failure to meet lease obligations.
The insurance provides coverage for lenders in situations where the property’s lease is re-entered or forfeited by the freeholder, ensuring that lenders are compensated for any shortfall in the mortgage advance.
“A mortgagee protection clause is included within most leases to protect the lender, should the borrower breach the lease for any reason,” said Chantelle Wren (pictured), associate director of underwriting at CLS Property Insight. “It enables the lender to be notified that the lease is at risk of forfeiture and provides the lender with the opportunity to remedy the breach prior to the landlord re-entering the property.
“Where there is no mortgagee protection clause in existence, the lender does not have the protection they will be notified by the freeholder of any lease breach by the borrower that could lead to forfeiture of the property.
“Property purchasers may be unable to secure a mortgage where this clause is absent from the lease unless the freeholder agrees to amend the lease by way of Deed of Variation; which can be costly and time-consuming, causing delays and additional expense to the conveyancing process, unless they can take out insurance.”
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