Indemnity Insurance of Defective Title Mortgage Company conveyancing instructions

Accord and RBS, like many banks, dictate their own requirements when it comes to defective title indemnity insurance. This page is designed to help domestic conveyancing practitioners on the various mortgage company solicitors panel where the title to be charged includes defective title. Solicitors should still check the Council of Mortgage Lenders’ handbook requirements for each lender, for example Virgin Money, Yorkshire Building Society or Natwest. The information on this page Is not to be read as defective title indemnity insurance advice.

Need help with defective title indemnity insurance from your lender?

---

Undertaking property work as a conveyancing practitioner 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 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 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 bank 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 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 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.

Nationwide and Coventry BS in common with the majority of banks, obligations require that where defective title indemnity insurance is to be taken out:

• your firm is required to disclose to the insurer all relevant information which you have gathered
• your practice must explain to the mortgagor that the borrower is obliged to adhere to 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
• your firm are responsible for approving the terms of the defective title policy on behalf of the lender
• the defective title indemnity insurance policy should be placed on risk without cost to the bank
• your practice must provide 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 mandatory if there is supplemental borrowing against the mortgaged property
• 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 owner or bank. Where the mortgagor will not be covered by the defective title indemnity insurance policy, you must advise the borrower of this fact.
• the defective title indemnity insurance policy must not contain terms that you know would void or compromise the interests of the mortgage company
• the limit of indemnity must satisfy the requirements for the lender (See Part II Handbook requirements )

As to the level 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 Part 2 requirements for lenders:

Defective Title Contingency Insurance : Reflections

The full terms, conditions and exclusions for defective title indemnity insurance are identified in the policy document. Conveyancing solicitors should direct 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 you should check the schedule to ensure it is as it should be. The lifetime of this non-investment insurance contract is in perpetuity unless otherwise stated in the defective title indemnity insurance policy. Adequacy in this regard should be checked.

---

Important features and benefits of defective title indemnity insurance :

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 Policies should be checked for the following

• 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.
• All sums paid with the written consent of the insurance company to free the land from the risks specified in the defective title insurance.
• Cover for compensation incurred in any proceedings regarding the risks specified in the defective title insurance, including solicitors charges.
• All ancillary costs and expenses incurred by the Insured with the written consent of the relevant insurer
• The cost of works (including architects’ and surveyors’ fees) for the purpose of the development started, 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.
• Loss in market value resulting from the successful enforcement of the risks specified in the defective title indemnity insurance.

---

You also need to be sure that the answers on the application form are accurate. However remote the likelihood of a claim on the bank insurance policy might be you can rest assured that the insurer will check the details on any proposal form thoroughly before any claim is paid out.

---

Defective Title Indemnity Insurance has limitations - Supplemental considerations

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

---

The above information covers to properties in England and Wales.