Defective Title Indemnity Insurance Bank conveyancing requirements
Lloyds TSB and Nationwide, in common with the majority of banks, set their own requirements when it comes to defective title indemnity insurance. The content herein aims to help conveyancing practitioners on the different bank approved list of panel lawyers where the title to be charged incorporates defective title. Lawyers are advised to familiarise themselves with the Council of Mortgage Lenders’ handbook requirements for each lender, for example Yorkshire Bank Home Loans, RBS or Barnsley BS. 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?
Practicing as a solicitor on a mortgage company panel, you must notify to the bank if you are aware 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 lender 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 bank 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 lender will refer the matter 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 made.
About Defective Title Indemnity Insurance
Thousands of lawyer throughout the country often rely on defective title insurance 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.
Leeds Building Society and Santander like the majority of lenders, obligations require that where defective title indemnity insurance is effected:
- 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 may be required if there is supplemental borrowing against the mortgaged property
- your firm must spell out to the borrower 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 respect of the policy
- you is obliged to reveal to the insurer all relevant information which you have acquired
- the minimum level of cover for the policy must satisfy the requirements for the mortgage company (see UK Finance Lenders’ Handbook Part 2 )
- the defective title indemnity insurance policy must not contain terms that you are aware would invalidate or compromise the interests of the lender
- the defective title indemnity insurance policy must be placed on risk without cost to the bank
- the defective title indemnity insurance policy should always be in favor of the lender and, wherever possible, in favour of the borrower and any subsequent registered proprietor or bank. If the borrower will not be covered by the defective title indemnity insurance policy, you must advise the mortgagor of this fact.
- you are responsible for approving the terms of the defective title policy on behalf of the bank
| Lender | Requirement |
|---|---|
| Adam & Company | The open market value of the property according to the valuation report. |
| Ahli United Bank | An amount equal to the value of the Mortgaged Property |
| Barclays plc | Higher of purchase price or valuation |
| Birmingham Midshires | An amount equal to at least 110% of the purchase price or value, whichever is higher. |
| Family Building Society | An amount at least equal to the mortgage advance. |
| Halifax Loans | An amount at least equal to the mortgage advance. |
| Intelligent Finance | An amount at least equal to the total of the initial mortgage advance plus any pre-agreed reserve. These amounts will be shown in the mortgage offer. |
| Investec | The open market value of the property according to the valuation report. |
| 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. |
| Leeds Building Society | An amount at least equal to the amount of the mortgage advance plus 10%. Any indemnity insurance policy must protect the borrowers, any successor in title and any Mortgagee. |
| Lloyds | The value of the property. |
| Manchester Building Society | Purchases- higher of the Purchase price & valuation Re-mortgages- Loan x 115%. |
| National Westminster Bank | An amount equal to the value of the property. |
| Paragon Mortgages Ltd | An amount at least equal to the stated value of the Property. |
| Paratus | An amount equal to 110% of the valuation or purchase price - whichever is the greater. |
| Precise Mortgages | An amount at least equal to 110% of the mortgage valuation. |
| Skipton Building Society | For lender only cover we will accept a minimum of 110% (index-linked) of the amount of the loan. |
| Swansea Building Society | Purchase price or market valuation whichever is the higher |
| Tipton Coseley Building Society | Minimum of mortgage advance. |
| Virgin | We require the full market value of the Property. Where this isn't available, we'll accept the loan amount as a minimum. |
Non lender-specific considerations
The full terms, conditions and exclusions for defective title indemnity insurance are shown in the policy document. Property lawyers are obliged to point 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 specified in the policy schedule - so you should check the schedule to determine that it is as it should be. The continuance of this non-investment insurance contract is in perpetuity unless otherwise stated in the defective title indemnity insurance policy. It is well worth checking that the time frame is correct.Defective Title Contingency insurance: Important characteristics and benefits:
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- Market value reduction due to the successful enforcement of the risks specified in the defective title policy.
- All sums paid with the written consent of the insurance company to free the property from the risks specified in the defective title indemnity insurance.
- The out of pocket expenses of altering or demolishing 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 in respect of the risks specified in the defective title indemnity insurance, including legal and associated costs.
- All other costs and expenses incurred by the Insured with consent in writing from the relevant insurer
- The cost of works (including professional fees) for the purpose of the development started, 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.
Always check what is not included in the defective title policy e.g. does the policy cover any property that has been altered within the year prior to the policy being put on risk? Are legal costs covered?
Supplemental considerations for defective title indemnity insurance
Defective Title Indemnity insurance isn’t a solution to all of the relevant problems.The above information is in relation to properties in England and Wales.