Indemnity Insurance of Defective Title Bank conveyancing requirements

RBS and Coventry BS, in common with most banks, have their own specific instructions when it comes to defective title indemnity insurance. The purpose of this page to assist domestic conveyancing solicitors on the numerous bank approved list of panel lawyers where the title to be charged contains defective title. It is not a substitute for checking the CML handbook requirements for each mortgage company, whether it be Halifax, Barclays or Leeds Building Society. The information on this page Is not to be read as defective title indemnity insurance advice.

Need help with defective title indemnity insurance from your lender?

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Being a conveyancing lawyer on a bank panel, you must report to the lender if you are aware that the title to the property was based on adverse possession or possessory title. This will be acceptable if the seller is or on completion the borrower will be registered at the Land Registry as registered proprietor of a possessory title. In the case of lost title deeds, the statutory declaration must explain the loss satisfactorily.

A bank will require defective title indemnity insurance where there are buildings on the part in question or where the land is essential for access or services;

A lender may not need defective title indemnity insurance in cases where such title affects land on which no buildings are erected or which is not essential for access or services. In such cases, you must send a plan of the whole of the land to be mortgaged to the lender identifying the area of land having possessory or defective title. The lender will refer the disclosure to their valuer so that an assessment can be made of the proposed security. The bank will then notify you of any additional requirements or if a revised mortgage offer is to be issued.

About Defective Title Indemnity Insurance

Defective title insurance is typically needed owing to because a property or land has only been registered with a less that perfect title at the Land Registry, usually arising from lost deeds or adverse possession. Defective title insurance tends to indemnify the insured upon challenge to the title with consequential damages or compensation awarded by a court or the Lands Tribunal, the cost of altering or demolishing all or any part of the property to comply with a court order or injunction and reduction in market value of the property prior to and after any estate right title restrictive covenant or interest being established adverse to or in derogation of the Insured’s title to the property.

HSBC and Barnsley BS as with the majority of lenders, instructions are such that where defective title indemnity insurance is to be taken out:

• the limit of indemnity must meet the requirements for the mortgage company (See Part II Handbook requirements )
• your firm must provide a copy of the defective title indemnity insurance to the mortgagor and explain to the mortgagor why the defective title indemnity insurance policy was effected and that a further policy might be mandatory if there is additional lending against the security of the property
• you is required to disclose to the insurer all relevant information which you have gathered
• the defective title indemnity insurance policy should not incorporate conditions that you are aware would void or compromise the interests of the mortgage company
• the defective title indemnity insurance policy must be in favor of the lender and, wherever possible, for the benefit of the borrower and any future registered proprietor or lender. If the mortgagor will not be protected by the defective title indemnity insurance policy, you must advise the mortgagor of this fact.
• you must approve the terms of the defective title policy on behalf of the bank
• the defective title indemnity insurance policy should be effected without charge to the bank
• your firm must point out to the mortgagor that the borrower will need to adhere to any conditions of the defective title indemnity insurance policy and that the borrower should notify the lender of any notice or potential claim in relation to the insurance

As to the level of cover for the defective title indemnity insurance policy (or for that matter any indemnity insurance), consider the following sampling of Section 9.2 of the Part 2 requirements for lenders:

Defective Title Contingency Insurance : Reflections

The extent of the terms for defective title indemnity insurance are identified in the policy paperwork. Conveyancing solicitors are obliged to direct your non-lender client to the defective title indemnity insurance policy document. Defective Title indemnity insurance is designed to provide indemnity in respect of the risks set out in the policy schedule - so it’s important to check the schedule to determine that it is correct. The continuance of this non-investment insurance contract is in perpetuity unless otherwise stated in the defective title indemnity insurance policy. Again, please check that this is as you expected.

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Important characteristics and benefits of defective title Contingency insurance :

This policy would usually provide protection from financial loss that might arise in the event of a third party making a cliam in respect of the risks identified in the policy document. Defective Title indemnity insurance Cover normally includes

• Expenses for works (including professional fees) for the purpose of the development begun, or contracted for, before the commencement of proceedings for the enforcement of the risks specified in the defective title policy, to the extent that such costs are rendered abortive by court decision.
• Liability for damages or compensation incurred in any proceedings regarding the risks specified in the defective title policy, as well as legal and associated costs.
• Diminution in value resulting from the successful enforcement of the risks specified in the defective title indemnity insurance.
• All sums paid with consent in writing from the insurance company to liberate the land from the risks specified in the defective title indemnity insurance.
• The out of pocket expenses of altering or destroying 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 other costs and expenses incurred by the Insured with consent in writing from the relevant insurer

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As is the case with all conventional insurance, all material information needs to be disclosed to the insurance company at the outset and throughout the policy term, otherwise the defective title policy will be invalidated.

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Defective Title Indemnity Insurance has limitations - Supplemental considerations

Bear in mind, that if a covenant is breached and changes have to be made, simply getting monetary compensation from defective title insurance may be adequate for your client.

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The above information covers to properties in England and Wales.