Lender conveyancing panel requirements re Defective Title Indemnity Insurance
Barnsley BS and Bank of Scotland, in common with the majority of banks, set their own requirements when it comes to defective title indemnity insurance. The purpose of this page to assist domestic conveyancing solicitors on the different mortgage company approved list of panel lawyers where the title to be charged includes defective title. Lawyers are advised to familiarise themselves with the Council of Mortgage Lenders’ handbook requirements for each mortgage company, for example Godiva Mortgages, Santander or Barclays. The content on this page is not focused on defective title indemnity insurance requirements.
Need help with defective title indemnity insurance from your lender?
In your capacity as a conveyancing practitioner on a lender panel, you must report to the mortgage company if you are aware 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 mortgage company 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 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 bank will refer the issue 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
Defective title cover is normally required 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.
Natwest and HSBC in common with most banks, instructions are such that where defective title indemnity insurance is to be taken out:
- your practice 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 mortgage company of any notice or potential claim in respect of the insurance
- the defective title indemnity insurance policy must be in favor of the lender and, wherever possible, in favour of the borrower and any next registered proprietor or bank. Where the borrower will not be covered by the defective title indemnity insurance policy, the mortgagor must be informed accordingly.
- the limit of indemnity must satisfy the requirements for the mortgage company (See Part II Handbook requirements )
- the defective title indemnity insurance policy must not incorporate conditions that you know would invalidate or prejudice the interests of the mortgage company
- your firm must send 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 a further policy may be necessary if there is supplemental lending against the mortgaged property
- your practice is obliged to reveal to the insurer all relevant information which you have obtained
- the defective title indemnity insurance policy must be effected without cost to the lender
- your firm must approve the terms of the defective title policy on behalf of the lender
| Lender | Requirement |
|---|---|
| Aldermore Bank | 110% of the purchase price or valuation, whichever is greater. 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). Where a property is being sold at undervalue and an equity gift is being provided, the conveyancer must ensure the seller obtains an Insolvency Act Indemnity Insurance Policy and provides evidence to you, so that you are comfortable an appropriate policy is in place to Aldermore’s satisfaction. This indemnity insurance aims to cover Aldermore against any future claims by creditors of the seller that may challenge the sale. |
| Bank of China | Cover to full value of the property or the Mortgage Advance, whichever is the higher. |
| Bank of Ireland Mortgages | The limit of indemnity must be an amount not less than the market value of the property. |
| Bank of Scotland | Not less than mortgage advance plus 10% |
| Dudley Building Society | Purchase price or valuation, whichever is higher. |
| Foundation Home loans | An amount equal to 110% of the valuation or purchase price - whichever is the greater. |
| Furness Building Society | Property valuation or purchase price, whichever the greater. |
| Investec | The open market value of the property according to the valuation report. |
| Kent Reliance | An amount at least equal to 110% of the mortgage valuation. |
| Landbay Partners | An amount equal to 100% of the property valuation or purchase price (whichever is greater) plus 10%. |
| Market Harborough Building Society | Purchase price or valuation - higher of the two |
| Mortgage Express | Amount of loan + 15% |
| New Street Mortgages | Must be for a minimum of 110% of the purchase price or valuation whichever is the greatest. |
| Pepper Money | An amount equal to at least 110% of 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 and also the borrower(s). |
| Precise Mortgages | An amount at least equal to 110% of the mortgage valuation. |
| Reliance Bank | \xA31,000,000.00 |
| St James Place | An amount at least equal to the total of the initial mortgage advance plus any pre-agreed reserve. These amounts will be shown in the mortgage offer. |
| Tandem Bank | An amount at least equal to 110% of the purchase price or valuation – whichever is the greater. |
| Topaz Finance | 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. |
| 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. |
General Defective Title indemnity insurance points to consider
The full terms, conditions and exclusions for defective title indemnity insurance are set out in the policy paperwork. Conveyancing Practitioners should direct the borrower to the defective title indemnity insurance policy paperwork. Defective Title Contingency insurance is devised to afford indemnity in respect of the risks set out in the policy schedule - so it is essential check any draft to ensure it is correct. The lifetime of this non-investment insurance agreement is in perpetuity unless otherwise stated in the defective title indemnity insurance policy. It is well worth checking that the time frame is correct.Defective Title indemnity insurance: Significant aspects 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 Policies are likely to cover the following- 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.
- All other costs and expenses incurred by the Insured with the written consent of the relevant insurer
- Reimbursement for compensation incurred in any proceedings regarding the risks specified in the defective title insurance, as well as fees of a legal nature.
- Money paid with the written consent of the insurance company to liberate the land from the risks specified in the defective title policy.
- Market value reduction due to the successful enforcement of the risks specified in the defective title policy.
- Expenses for works (including architects’ and surveyors’ 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.
As is the case with all conventional insurance, 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.
Additional considerations for defective title indemnity insurance
Defective Title Indemnity policies can provide effective protection, but non-lender clients should be asked to give pause for thought and consider that the consequences of not being able to enjoy the property as anticipated may mean that defective title indemnity cover will not necessarily be the right solution.The above information is in relation to properties in England and Wales.