Indemnity Insurance of Defective Title Mortgage Company conveyancing obligations
Lloyds TSB and Skipton, as with the majority of banks, have their own requirements when it comes to defective title indemnity insurance. The content herein aims to help property law practitioners on the different mortgage company solicitors panel where the title to be charged contains defective title. Solicitors should still check the CML handbook requirements for each lender, for example Yorkshire Bank Home Loans, Godiva Mortgages or RBS. 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 conveyancing practitioner on a bank panel, you must notify to the bank if you are aware 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 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 mortgage company will refer the issue 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 insurance is typically 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.
Leeds Building Society and Natwest like most lenders, instructions are such that where defective title indemnity insurance is to be put on risk:
- your practice 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 could be required if there is additional borrowing against the security of the property
- your firm must approve the terms of the defective title policy on behalf of the bank
- the defective title indemnity insurance policy should not incorporate conditions that you recognise would void or prejudice the interests of the mortgage company
- you is required to reveal to the insurer all relevant information which you have obtained
- the defective title indemnity insurance policy should be effected at no expense to the mortgage company
- your practice is duty bound to explain to the borrower that the borrower must comply with any conditions of the defective title indemnity insurance policy and that the borrower should notify the mortgage company of any notice or potential claim in relation to the insurance
- the level of indemnity must satisfy the requirements for the lender (see UK Finance Lenders’ Handbook Part 2 )
- the defective title indemnity insurance policy needs to be for the benefit of the mortgage company and, if possible, for the benefit of the borrower and any future registered proprietor or lender. If the mortgagor will not be protected by the defective title indemnity insurance policy, you must advise the mortgagor of this fact.
| Lender | Requirement |
|---|---|
| Aviva Equity Release | Full value of the property. |
| Barnsley 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. |
| Coutts & Co | The open market value of the property according to the valuation report. |
| Foundation Home loans | An amount equal to 110% of the valuation or purchase price - whichever is the greater. |
| 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. |
| Keystone Property Finance | An amount equal to 110% of the valuation or purchase price - whichever is the greater |
| LendInvest | An amount at least equal to the valuation of the property. |
| 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. |
| Mortgage Agency Services | 110% of the purchase price or valuation, whichever is greater |
| Mortgage Express | Amount of loan + 15% |
| Paragon Mortgages Ltd | 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. |
| Parity Trust | An amount equal to at least 110% of the mortgage advance |
| Santander | The purchase price or (if lower) 110% of the mortgage advance. |
| RBS - Virgin One | An amount equal to the value of the property. |
| Tipton Coseley Building Society | Minimum of mortgage advance. |
| Yorkshire Bank | Open market value of 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. |
General Defective Title indemnity insurance points to consider
The extent of the terms for defective title indemnity insurance are shown in the policy paperwork. Property lawyers should direct the borrower to the defective title indemnity insurance policy paperwork. The intention of defective title indemnity insurance is to provide indemnity in respect of the risks set out in the policy schedule - so it’s important to check any draft to determine that it is correct. The duration of this non-investment insurance agreement is in perpetuity unless the policy says something to the contrary. Adequacy in this regard should be checked.Defective Title indemnity insurance: Important aspects and benefits:
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 should be checked for the following- 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 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.
- Money paid with consent in writing from the insurance company to liberate the property from the risks specified in the defective title insurance.
- Liability for damages or compensation incurred in any action regarding the risks specified in the defective title policy, as well as legal and associated costs.
- Loss in market value due to the successful enforcement of the risks specified in the defective title policy.
You also need to be sure that the answers on the application form are correct. However remote the likelihood of a claim on the bank insurance policy might be you can be sure that the insurer will check the details on any proposal form thoroughly before any claim is paid out.
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 answer.The content set out above is in relation to properties in England and Wales.