Defective Title Indemnity Insurance Lender conveyancing requirements
Leeds Building Society and Chelsea BS, like many mortgage companies, dictate their own requirements when it comes to defective title indemnity insurance. This page sets out to enlighten domestic conveyancing lawyers on the different mortgage company solicitors panel where the title to be charged incorporates defective title. Solicitors should still check the Council of Mortgage Lenders’ handbook requirements for each bank, be it Yorkshire Bank Home Loans, Birmingham Midshires or Bank of Scotland. The content on this page is not focused on defective title indemnity insurance requirements.
Need help with defective title indemnity insurance from your lender?
Practicing as a property lawyer on a bank panel, you must report to the lender 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 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 mortgage company 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 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 bank will then notify you of any additional requirements or if a revised mortgage offer is to be issued.
About Defective Title Indemnity Insurance
Defective title insurance 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 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.
HSBC and Natwest like most banks, requirements are that where defective title indemnity insurance is effected:
- the defective title indemnity insurance policy must be placed on risk at no expense to the lender
- the defective title indemnity insurance policy must not contain terms which you know would invalidate or compromise the interests of the mortgage company
- your firm must supply a duplicate 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 might be necessary if there is additional lending against the mortgaged property
- your practice is duty bound to spell out to the mortgagor 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 relation to the policy
- you must reveal to the insurer all relevant information which you have acquired
- the defective title indemnity insurance policy needs to be in favor of the lender and, if possible, in favour of the mortgagor and any next owner or mortgage company. Where the borrower will not be covered by the defective title indemnity insurance policy, you must advise the borrower of this fact.
- your firm are responsible for approving the terms of the defective title policy on behalf of the lender
- the minimum level of cover for the policy must meet the requirements for the bank (See Part II Handbook requirements )
| Lender | Requirement |
|---|---|
| Accord Mortgages | 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. |
| Bank of China | Cover to full value of the property or the Mortgage Advance, whichever is the higher. |
| Barclays plc | Higher of purchase price or valuation |
| Better HomeOwnership | An amount to cover the mortgage advance as a minimum. |
| Britannia | Cover to the full value of the property. |
| Coutts & Co | The open market value of the property according to the valuation report. |
| Gen H | An amount equal to the value of the property unless specifically agreed in writing otherwise. |
| Halifax | An amount at least equal to the mortgage advance. |
| Halifax Loans | An amount at least equal to the mortgage advance. |
| Hodge Equity Release | 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. |
| ITL Mortgages | Minimum of the value of the property. |
| MPowered Mortgages | Either the minimum reinstatement value or where there is no valuation the market value/purchase price figure (whichever is higher). |
| Masthaven Bank | An amount at least equal to the total mortgage advance. Any indemnity insurance policy must protect the borrowers, any successors in title and any mortgagee. |
| Monmouthshire Building Society | The higher of the purchase price or valuation. For remortgages, the value of the advance. |
| Nationwide Building Society | Purchase Price (valuation if price is at a discount). Contact Issuing Office for advice on a remortgage |
| Paragon Residential | An amount at least equal to the stated value of the Property. |
| Scottish Building Society | Amount of mortgage plus 25%. |
| RBS - Direct Line One | An amount equal to the value of the property. |
| 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. |
| Virgin | We require the full market value of the Property. Where this isn't available, we'll accept the loan amount as a minimum. |
Non lender-specific considerations
The extent of the terms for defective title indemnity insurance are identified in the policy document. Conveyancing Practitioners should point your non-lender client to the defective title indemnity insurance policy document. Defective Title Contingency insurance is designed to afford indemnity in respect of the risks set out in the policy schedule - so it’s important to check the document to determine that it is correct. The continuance 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 Contingency 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 Cover normally includes- All ancillary costs and expenses incurred by the Insured with the written consent of the relevant insurer
- 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.
- The cost of works (including professional fees) for the purpose of the development started, prior to 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 order.
- Reimbursement for compensation incurred in any action in respect of the risks specified in the defective title insurance, as well as legal and associated costs.
- All sums paid with consent in writing from the insurance company to free the land from the risks specified in the defective title indemnity insurance.
- Loss in market value resulting from the successful enforcement of the risks specified in the defective title indemnity insurance.
Always consider what is excluded from the defective title policy e.g. does the policy cover any residence that has been altered within the year prior to the commencement of the policy? Are legal costs covered?
Further considerations for defective title indemnity insurance
Defective Title insurance may satisfy lenders such as Accord or RBS 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 is in relation to properties in England and Wales.