Defective Title Indemnity Insurance Bank conveyancing requirements

Halifax and Barnsley BS, like many mortgage companies, set their own specific instructions when it comes to defective title indemnity insurance. This page sets out to enlighten property law firms on the numerous bank conveyancing panel where the title to be charged includes defective title. Solicitors should still check the Council of Mortgage Lenders’ handbook requirements for each mortgage company, whether it be Nationwide, Skipton or Santander. The information on this page is not focused on defective title indemnity insurance requirements.

Need help with defective title indemnity insurance from your lender?

---

As a conveyancing practitioner on a bank panel, you must disclose to the mortgage company where it comes to your attention that the title to the property is 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 need 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 bank identifying the area of land having possessory or defective title. The bank will refer the matter to their valuer so that an assessment can be made of the proposed security. The mortgage company will then notify you of any additional requirements or if a revised mortgage offer is to be resent.

About Defective Title Indemnity Insurance

Many lawyer accross the UK regularly recommend 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.

Natwest and Virgin Money like many mortgage companies, instructions are such that where defective title indemnity insurance is to be taken out:

• you is duty bound to explain to the mortgagor that the borrower is obliged to comply with 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 limit of indemnity must satisfy the requirements for the mortgage company (See Part II Handbook requirements )
• the defective title indemnity insurance policy must be for the benefit of the lender and, wherever possible, for the benefit of the mortgagor and any subsequent owner or mortgagee. Where the mortgagor will not be covered by the defective title indemnity insurance policy, the borrower must be advised accordingly.
• the defective title indemnity insurance policy should not contain terms which you know would invalidate or compromise the interests of the mortgage company
• your practice must send 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 additional insurance may be necessary if there is further lending against the security of the property
• you is required to reveal to the insurer all relevant information which you have acquired
• your firm are responsible for approving the terms of the defective title policy on behalf of the mortgage company
• the defective title indemnity insurance policy should be effected without cost to the lender

Regarding the extent 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 Practitioners are obliged to point your non-lender client to the defective title indemnity insurance policy paperwork. Defective Title indemnity insurance is designed to afford indemnity in respect of the risks specified in the policy schedule - so it’s important to check the schedule to ensure it is as it should be. The lifetime of this non-investment insurance agreement is in perpetuity unless the policy says something to the contrary. Adequacy in this regard should be checked.

---

Defective Title indemnity insurance: Significant aspects and benefits:

Protection via such a policy is to cover the risk of third parties looking to enforce rights that can affect the use of a property. Defective Title indemnity insurance Policies are likely to cover the following

• The cost of 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 indemnity insurance, to the extent that such costs are rendered abortive by court order.
• Cover for compensation incurred in any proceedings in respect of the risks specified in the defective title insurance, including incurred costs and expenses.
• All ancillary costs and expenses incurred by the Insured with consent in writing from the relevant insurance company
• 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 sums paid with the written consent of the insurance company to free the land from the risks specified in the defective title policy.
• Market value reduction resulting from the successful enforcement of the risks specified in the defective title policy.

---

Always check what is excluded from the defective title indemnity insurance e.g. does the policy cover any residence that has been altered within the year prior to the commencement of the policy? Are legal costs covered?

---

Defective Title Indemnity Insurance has limitations - Additional considerations

There may be consequences arising from the enforcement of the risks identified in the defective title policy which are not adequately covered by financial compensation.

---

The above information covers to properties in England and Wales.