Lender conveyancing panel requirements re Defective Title Indemnity Insurance
RBS and Coventry BS, as with the majority of lenders, have their own requirements when it comes to defective title indemnity insurance. The content herein aims to help residential conveyancing firms on the various mortgage company 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 bank, be it HSBC, Virgin Money or Nationwide. 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?
Being 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 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 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 mortgage company 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 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 resent.
About Defective Title Indemnity Insurance
Many property lawyer throughout the country 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.
Bank of Scotland and Halifax in common with most banks, requirements are that where defective title indemnity insurance is effected:
- the level of indemnity 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 mortgage company and, wherever possible, for the benefit of the mortgagor and any future owner or lender. Where the borrower will not be covered by the defective title indemnity insurance policy, the mortgagor needs to be advised accordingly.
- your practice must supply a duplicate 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 might be necessary if there is supplemental lending against the security of the property
- you is duty bound to point out to the borrower that the borrower must adhere to any conditions of the defective title indemnity insurance policy and that the mortgagor should notify the mortgage company of any notice or potential claim in respect of the policy
- the defective title indemnity insurance policy must be placed on risk at no cost to the mortgage company
- the defective title indemnity insurance policy should not incorporate terms which you are aware would void or prejudice the interests of the lender
- your firm are responsible for approving the terms of the defective title policy on behalf of the bank
- your firm is obliged to disclose to the insurer all relevant information which you have gathered
| Lender | Requirement |
|---|---|
| April Mortgages | An amount at least equal to the mortgage advance. |
| Clydesdale Bank | Open market value of property. |
| Coutts Finance | The open market value of the property according to the valuation report. |
| Darlington Building Society | The higher of value or purchase price of the property. |
| First Direct | The value of the insurance must be for at least the full value of the property |
| Habito | Higher of purchase price or valuation |
| Hinckley and Rugby | The policy must be for our benefit and for no less than the amount lent to the borrower, including retentions, stage payments and interest. |
| LiveMore | An amount equal to the purchase price or value of the property, whichever is higher |
| 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. |
| Paragon Residential | 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. |
| Scottish Building Society | Amount of mortgage plus 25%. |
| The Mortgage Lender | An amount at least equal to the mortgage advance. |
| RBS - Direct Line One | An amount equal to the value of the property. |
| Royal Bank of Scotland -Natwest One | An amount equal to the value of the property. |
| Ulster Bank | An amount equal to the value of the property. |
| Virgin | We require the full market value of the Property. Where this isn't available, we'll accept the loan amount as a minimum. |
| 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 full terms, conditions and exclusions for defective title indemnity insurance are identified in the policy document. Property lawyers should point your non-lender client to the defective title indemnity insurance policy document. Defective Title Contingency insurance is devised to afford indemnity in respect of the risks specified in the policy schedule - so it is essential check the schedule to determine that it is correct. The continuance of this non-investment insurance agreement is in perpetuity unless the policy says something to the contrary. It is well worth checking that the time frame is correct.Defective Title indemnity insurance: Significant features 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 should be checked for the following- All ancillary costs and expenses incurred by the Insured with the written consent of the relevant insurance company
- Expenses for works (including architects’ and surveyors’ 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 indemnity insurance, to the extent that such costs are rendered abortive by court decision.
- Loss in market value resulting from the successful enforcement of the risks specified in the defective title insurance.
- All sums paid with the written consent of the insurance company to liberate the land from the risks specified in the defective title indemnity insurance.
- Reimbursement for compensation incurred in any proceedings concerning the risks specified in the defective title indemnity insurance, including fees of a legal nature.
- 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.
Due diligence should extend to checking that the answers on the application form are accurate. Regardless of how remote a claim on the bank insurance policy might be you can be sure that the insurer will check the details on any proposal form very carefully prior to any claim being met.
Defective Title Indemnity Insurance has limitations - Supplemental considerations
Defective Title insurance may satisfy lenders such as Yorkshire Building Society or Barnsley BS 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 above information covers to properties in England and Wales.