Defective Title Indemnity Insurance Mortgage Company conveyancing requirements

Yorkshire Building Society and Chelsea BS, as with the majority of mortgage companies, dictate their own specific instructions when it comes to defective title indemnity insurance. The content herein aims to help property law solicitors on the various mortgage company conveyancing panel where the title to be charged contains defective title. Solicitors should still check the CML handbook requirements for each bank, whether it be Natwest, Coventry BS or Leeds Building Society. 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?

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Undertaking property work as a solicitor on a lender panel, you must notify to the bank where it comes to your knowledge 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 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 bank may not require defective title indemnity insurance in transactions 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 mortgage company will refer the disclosure 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

Defective title insurance is typically 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.

Accord and Yorkshire Bank Home Loans in common with most banks, instructions are such that where defective title indemnity insurance is to be put on risk:

• your firm is duty bound to spell out to the borrower that the borrower is obliged to adhere to 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 policy
• your firm must approve the terms of the defective title policy on behalf of the lender
• the defective title indemnity insurance policy should not incorporate terms that you know would invalidate or prejudice the interests of the bank
• your firm is required to reveal to the insurer all relevant information which you have gathered
• the level of indemnity must satisfy the requirements for the mortgage company (see UK Finance Lenders’ Handbook Part 2 )
• the defective title indemnity insurance policy needs to be for the benefit of the bank and, if possible, for the benefit of the borrower and any subsequent registered proprietor or lender. Where the borrower will not be protected by the defective title indemnity insurance policy, you must advise the borrower of this fact.
• your firm must supply a copy of the defective title indemnity insurance to the borrower and explain to the mortgagor why the defective title indemnity insurance policy was effected and that additional insurance could be required if there is supplemental borrowing against the security of the property
• the defective title indemnity insurance policy should be placed on risk at no expense 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 CML handbook PII requirements for lenders:

Defective Title Contingency Insurance : Reflections

The extent of the terms for defective title indemnity insurance are shown in the policy paperwork. Property lawyers are obliged to point the borrower to the defective title indemnity insurance policy paperwork. The intention of defective title indemnity insurance is to grant indemnity in respect of the risks specified in the policy schedule - so it is essential check any draft to ensure it is correct. The continuance of this non-investment insurance agreement is in perpetuity unless otherwise stated in the defective title indemnity insurance policy. Adequacy in this regard should be checked.

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Significant characteristics and benefits of defective title indemnity 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 Policies are likely to cover the following

• All other costs and expenses incurred by the Insured with consent in writing from the relevant insurance company
• Diminution in value resulting from the successful enforcement of the risks specified in the defective title insurance.
• Expenses for works (including architects’ and surveyors’ fees) for the purpose of the development begun, or contracted for, prior to 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.
• Cover for compensation incurred in any proceedings concerning the risks specified in the defective title insurance, as well as fees of a legal nature.
• 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.
• Money paid with the written consent of the insurance company to liberate the property from the risks specified in the defective title indemnity insurance.

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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 be invalidated.

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Supplemental considerations for defective title indemnity insurance

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

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The above information covers to properties in England and Wales.