Indemnity Insurance of Defective Title Lender conveyancing obligations
Virgin Money and Leeds Building Society, in common with most lenders, dictate their own specific instructions when it comes to defective title indemnity insurance. This page sets out to enlighten domestic conveyancing lawyers on the numerous mortgage company conveyancing panel where the title to be charged incorporates defective title. Lawyers are advised to familiarise themselves with the CML handbook requirements for each mortgage company, whether it be Birmingham Midshires, RBS or Yorkshire Bank Home Loans. The content 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 lender panel, you must disclose to the lender where it comes to your knowledge that the title to the property was 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 bank 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 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 disclosure 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
Defective title cover is normally needed 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.
Barclays and Yorkshire Building Society as with many banks, obligations require that where defective title indemnity insurance is effected:
- the defective title indemnity insurance policy needs to be for the benefit of the lender and, if possible, in favour of the borrower and any subsequent owner or mortgage company. If 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 lender
- your firm must provide 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 mandatory if there is additional lending against the security of the property
- the defective title indemnity insurance policy must be effected without expense to the mortgage company
- you is duty bound to point out to the borrower that the borrower is obliged to adhere to any conditions of the defective title indemnity insurance policy and that the borrower should notify the bank of any notice or potential claim in respect of the policy
- the defective title indemnity insurance policy must not incorporate terms that you know would invalidate or compromise the interests of the mortgage company
- the minimum level of cover for the policy must meet the requirements for the bank (See Part II Handbook requirements )
- your firm must disclose to the insurer all relevant information which you have gathered
| Lender | Requirement |
|---|---|
| Adam & Company | The open market value of the property according to the valuation report. |
| April Mortgages | An amount at least equal to the mortgage advance. |
| Bank of Scotland | Not less than mortgage advance plus 10% |
| Family Building Society | An amount at least equal to the mortgage advance. |
| Foundation Home loans | An amount equal to 110% of the valuation or purchase price - whichever is the greater. |
| HSBC UK Bank | The value of the insurance must be for at least the full value of the property |
| Holmesdale Building Society | 110% |
| ITL Mortgages | Minimum of the value of the property. |
| Investec | The open market value of the property according to the valuation report. |
| Legal & General Home Finance | The policy should be for the full market value of the property and indexed linked. The policy must be for our benefit, and for the benefit of the borrower where available. The policy must benefit all successors and assigns. |
| LiveMore | An amount equal to the purchase price or value of the property, whichever is higher |
| Magellan Homeloans | At least equal to the value of the property |
| New Street Mortgages | Must be for a minimum of 110% of the purchase price or valuation whichever is the greatest. |
| 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). |
| Scottish Building Society | Amount of mortgage plus 25%. |
| Swansea Building Society | Purchase price or market valuation whichever is the higher |
| The Mortgage Business | An amount at least equal to the mortgage advance/credit limit - whichever is the highest. |
| The Mortgage Works | The full purchase price/value of the property whichever is higher |
| RBS- First Active | 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. |
Non lender-specific considerations
The full terms, conditions and exclusions for defective title indemnity insurance are explained in the policy paperwork. Conveyancing solicitors are obliged to point your non-lender client to the defective title indemnity insurance policy itself. Defective Title indemnity insurance is designed to provide indemnity in respect of the risks set out in the policy schedule - so it is essential check the document to ensure it is correct. The duration 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.Significant features and benefits of defective title Contingency insurance :
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- All ancillary costs and expenses incurred by the Insured with the written consent of the relevant insurance company
- The cost 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.
- Money paid with consent in writing from the insurance company to free the property from the risks specified in the defective title indemnity insurance.
- Expenses for works (including professional fees) for the purpose of the development commenced, prior to 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.
- Diminution in value due to the successful enforcement of the risks specified in the defective title insurance.
- Liability for damages or compensation incurred in any action in respect of the risks specified in the defective title indemnity insurance, as well as fees of a legal nature.
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.
Defective Title Indemnity Insurance has limitations - Other 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 content set out above covers to properties in England and Wales.