The mortgage protection policy insures a lender for shortfall on the mortgage advance on a leasehold property following re-entry or forfeiture of a borrower’s lease by the freeholder.
Claim scenarios where the lease could be forfeited include non-payment of ground rent and/or service charges, breach of covenants, bankruptcy or insolvency, or failure to comply with lease obligations.
Chantelle Wren, associate director of underwriting at CLS Property Insight, said: “A mortgagee protection clause is included within most leases to protect the lender, should the borrower breach the lease for any reason. 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, and 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.”
CLSQ recently launched an estate rentcharge policy to support the conveyancing processes on properties where there is an estate rentcharge created after the Rentcharges Act 1977.
