Defective Title Indemnity Insurance Bank conveyancing requirements
Virgin Money and Lloyds TSB, in common with many banks, have their own requirements when it comes to defective title indemnity insurance. This page is designed to help conveyancing solicitors on the numerous bank approved list of panel lawyers where the title for the the property to be mortgaged contains defective title. Lawyers are advised to familiarise themselves with the Council of Mortgage Lenders’ handbook requirements for each mortgage company, whether it be RBS, Skipton or Coventry 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?
As a solicitor on a bank panel, you must disclose to the bank if you are aware 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 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 mortgage company 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 solicitor throughout the country often 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.
Barnsley BS and HSBC in common with most banks, instructions are such that where defective title indemnity insurance is effected:
- your practice must send a duplicate of the defective title indemnity insurance to the borrower and explain to the borrower why the defective title indemnity insurance policy was effected and that additional insurance may be necessary if there is further borrowing against the security of the property
- the defective title indemnity insurance policy should not incorporate conditions that you are aware would invalidate or compromise the interests of the bank
- you are responsible for approving the terms of the defective title policy on behalf of the lender
- the defective title indemnity insurance policy must be effected without cost to the bank
- the minimum level of cover for the policy must satisfy the requirements for the bank (see UK Finance Lenders’ Handbook Part 2 )
- the defective title indemnity insurance policy should always be for the benefit of the lender and, if possible, for the benefit of the borrower and any future owner or bank. If the mortgagor will not be protected by the defective title indemnity insurance policy, you must advise the borrower of this fact.
- you is required to disclose to the insurer all relevant information which you have obtained
- your practice must point out to the mortgagor that the borrower is obliged to adhere to any conditions of the defective title indemnity insurance policy and that the mortgagor should notify the bank of any notice or potential claim in relation to the insurance
| Lender | Requirement |
|---|---|
| Bank of Ireland | The limit of indemnity must be an amount not less than the market value of the property. |
| Bank of Scotland Private | [This lender has not published an answer to this question. Please contact the lender.]
|
| Barnsley 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. |
| Dudley Building Society | Purchase price or valuation, whichever is higher. |
| HSBC UK Bank | The value of the insurance must be for at least the full value of the property |
| Handelsbanken | Purchase price or 110% of mortgage advance, whichever is the greater. |
| Hodge | 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. |
| Kensington Mortgage | Must be for a minimum of 110% of the purchase price or valuation whichever is the greatest. |
| 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 TSB Scotland | The value of the property |
| Manchester Building Society | Purchases- higher of the Purchase price & valuation Re-mortgages- Loan x 115%. |
| Market Harborough Building Society | Purchase price or valuation - higher of the two |
| Mortgage Agency Services | 110% of the purchase price or valuation, whichever is greater |
| Nationwide Building Society | Purchase Price (valuation if price is at a discount). Contact Issuing Office for advice on a remortgage |
| New Street Mortgages | Must be for a minimum of 110% of the purchase price or valuation whichever is the greatest. |
| Sainsbury's Bank | An amount equal to the higher of the value of the property or the purchase price. |
| TSB | The value of the property |
| Royal Bank of Scotland -Natwest One | An amount equal to the value of the property. |
| RBS - Virgin One | An amount equal to the value of the property. |
| Zephyr Mortgages | Valuation or purchase price, whichever is higher. The policy must always benefit the borrower and any subsequent owner or mortgagee - the policy must be index linked. |
General Defective Title indemnity insurance points to consider
The extent of the terms for defective title indemnity insurance are explained in the policy document. Conveyancing solicitors are obliged to point the borrower to the defective title indemnity insurance policy document. Defective Title Contingency insurance is devised to provide indemnity in respect of the risks set out in the policy schedule - so it’s important to check the document to ensure it is correct. The duration of this non-investment insurance contract is in perpetuity unless the policy says something to the contrary. It is well worth checking that the time frame is correct.Defective Title Contingency insurance: Significant features 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- The cost 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.
- Loss in market value resulting from the successful enforcement of the risks specified in the defective title policy.
- All other costs and expenses incurred by the Insured with the written consent of the relevant insurance company
- Liability for damages or compensation incurred in any action regarding the risks specified in the defective title insurance, including fees of a legal nature.
- All sums paid with consent in writing from the insurance company to liberate the property from the risks specified in the defective title policy.
- 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 insurance, to the extent that such costs are rendered abortive by court decision.
As with any insurance policy, 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 not be valid.
Additional considerations for defective title indemnity insurance
Defective Title insurance may satisfy lenders such as Barclays or Leeds Building Society and prevent clients from from suffering financially but it cannot compensate for the stress and inconvenience the emotional suffering - after all the value of a home cannot always be measured in cash in the eyes of the owner.The content set out above covers to properties in England and Wales.