Mortgage Company conveyancing panel requirements re Defective Title Indemnity Insurance
Chelsea BS and Barclays, in common with the majority of banks, have their own specific instructions when it comes to defective title indemnity insurance. This page is designed to help domestic conveyancing solicitors on the various mortgage company approved list of panel lawyers where the title for the the property to be mortgaged incorporates defective title. It is not a alternative for checking the Council of Mortgage Lenders’ handbook requirements for each bank, be it Santander, Coventry BS or Bank of Scotland. The content on this page is not focused on defective title indemnity insurance requirements.
Need help with defective title indemnity insurance from your lender?
In your capacity as a conveyancing lawyer on a lender panel, you must disclose to the bank where it comes to your knowledge that the title to the property was based on adverse possession or possessory title. This may 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 mortgage company 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 mortgage company may not require 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 mortgage company will refer the matter to their valuer so that an assessment can be made of the proposed security. The lender will then notify you of any additional requirements or if a revised mortgage offer is to be made.
About Defective Title Indemnity Insurance
Thousands of conveyancer accross the UK often recommend defective title policies 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 resulting in 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.
Accord and Nationwide in common with most banks, instructions are such that where defective title indemnity insurance is to be taken out:
- you must explain to the mortgagor that the borrower will need to adhere to any conditions of the defective title indemnity insurance policy and that the mortgagor should notify the lender of any notice or potential claim in respect of the insurance
- the defective title indemnity insurance policy should not contain terms which you are aware would void or compromise the interests of the mortgage company
- the limit of indemnity must meet the requirements for the mortgage company (see UK Finance Lenders’ Handbook Part 2 )
- the defective title indemnity insurance policy must be effected at no expense to the bank
- the defective title indemnity insurance policy should always be in favor of the bank and, if possible, for the benefit of the mortgagor and any subsequent registered proprietor or lender. Where the mortgagor will not be protected by the defective title indemnity insurance policy, you must advise the borrower of this fact.
- your practice must approve the terms of the defective title policy on behalf of the bank
- you must reveal to the insurer all relevant information which you have obtained
- your practice must send a duplicate of the defective title indemnity insurance to the mortgagor and explain to the borrower why the defective title indemnity insurance policy was effected and that a further policy may be required if there is supplemental borrowing against the mortgaged property
| Lender | Requirement |
|---|---|
| April Mortgages | An amount at least equal to the mortgage advance. |
| Bank of Scotland Private | Not less than the Facility plus 10%. |
| Britannia | Cover to the full value of the property. |
| Cynergy Bank | The market value of the property. |
| Gen H | An amount equal to the value of the property unless specifically agreed in writing otherwise. |
| Handelsbanken | Purchase price or 110% of mortgage advance, whichever is the greater. |
| Hodge Equity Release | An amount equal to the purchase price or value, whichever is higher. Any indemnity insurance policy must be for our benefit, that of any transferee/assignee (legal or equitable) of the mortgage, the borrower(s) and any successor in Title. |
| Investec | The open market value of the property according to the valuation report. |
| Kensington Mortgage | Must be for a minimum of 110% of the purchase price or valuation whichever is the greatest. |
| Landmark | Preference for full market value of the property, but if this level of cover is not available, will accept a minimum of the actual loan amount. You must approve the policy on our behalf. |
| Lloyds | The value of the property. |
| Mortgage Agency Services | 110% of the purchase price or valuation, whichever is greater |
| Mortgage Express | Amount of loan + 15% |
| National Counties Building Society | An amount at least equal to the mortgage advance. |
| Perenna | The higher of the purchase price or valuation. |
| Saffron Building Society | Higher of purchase price or valuation. Any indemnity insurance policy must be for our benefit, that of any transferee/assignee (legal or equitable) of the mortgage and also the borrower(s). |
| Swansea Building Society | Purchase price or market valuation whichever is the higher |
| Tandem Bank | An amount at least equal to 110% of the purchase price or valuation – whichever is the greater. |
| The Mortgage Business | An amount at least equal to the mortgage advance/credit limit - whichever is the highest. |
| Yorkshire Building Society | An amount at least equal to the amount of the mortgage advance. Any indemnity insurance policy must protect the borrowers, any successors in title and any mortgagee. |
Non lender-specific considerations
The extent of the terms for defective title indemnity insurance are identified in the policy document. Conveyancing Practitioners are obliged to direct the borrower to the defective title indemnity insurance policy itself. The intention of defective title indemnity insurance is to grant indemnity in respect of the risks set out in the policy schedule - so it’s important to check any draft to determine that it is correct. The continuance of this non-investment insurance agreement is in perpetuity unless otherwise stated in the defective title indemnity insurance policy. Adequacy in this regard should be checked.Defective Title indemnity insurance: Significant aspects and benefits:
The policy will normally cover where someone claims to be entitled to the benefit of the specified risks, stated in the defective title indemnity insurance schedule. Defective Title indemnity insurance Cover normally includes- Money paid with consent in writing from the insurance company to free the land from the risks specified in the defective title insurance.
- The out of pocket expenses of altering or taking down 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.
- Reimbursement for compensation incurred in any proceedings concerning the risks specified in the defective title insurance, including legal and associated costs.
- Expenses for works (including professional fees) for the purpose of the development commenced, before the commencement of proceedings for the enforcement of the risks specified in the defective title insurance, to the extent that such costs are rendered abortive by court decision.
- All ancillary costs and expenses incurred by the Insured with consent in writing from the relevant insurer
- Market value reduction due to the successful enforcement of the risks specified in the defective title insurance.
You also need to be sure that the answers on the application form are accurate. Regardless of how remote a claim on the lender insurance policy might be you can certain that the insurer will check the details on any proposal form thoroughly before any claim is admitted.
Defective Title Indemnity Insurance has limitations - Additional 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.The above information is in relation to properties in England and Wales.