Bank conveyancing panel requirements re Defective Title Indemnity Insurance

Virgin Money and Chelsea BS, like most banks, dictate their own requirements when it comes to defective title indemnity insurance. This page sets out to enlighten residential conveyancing practitioners on the various lender solicitors panel where the title to be charged incorporates defective title. It is not a alternative for checking the CML handbook requirements for each lender, whether it be Bank of Scotland, Barclays or Birmingham Midshires. 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?

---

Being a solicitor on a lender panel, you must report to the mortgage company where it comes to your attention 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 mortgage company 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 lender 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 matter 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 normally 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.

Skipton and Nationwide as with the majority of banks, obligations require that where defective title indemnity insurance is to be taken out:

• the defective title indemnity insurance policy should not incorporate terms that you recognise would void or compromise the interests of the bank
• your firm is duty bound to spell out 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 lender of any notice or potential claim in relation to the insurance
• you must reveal to the insurer all relevant information which you have obtained
• you must approve the terms of the defective title policy on behalf of the lender
• the limit of indemnity must satisfy the requirements for the bank (See Part II Handbook requirements )
• the defective title indemnity insurance policy must be for the benefit of the lender and, wherever possible, in favour of the borrower and any future 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.
• the defective title indemnity insurance policy should be effected at no cost to the mortgage company
• your practice must send 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 mandatory if there is further lending against the security of the property

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 Paragraph 9.2 of the Part 2 requirements for banks:

Defective Title Contingency Insurance : Reflections

The full terms, conditions and exclusions for defective title indemnity insurance are shown in the policy paperwork. Conveyancing Practitioners should direct the borrower to the defective title indemnity insurance policy itself. The intention of defective title indemnity insurance is to grant indemnity in respect of the risks specified in the policy schedule - so it’s important to check any draft to determine that it is as it should be. The duration of this non-investment insurance contract is in perpetuity unless otherwise stated in the defective title indemnity insurance policy. Again, please check that this is as you expected.

---

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 Policies are likely to cover the following

• All sums paid with consent in writing from the insurance company to liberate the property from the risks specified in the defective title indemnity insurance.
• Diminution in value resulting from the successful enforcement of the risks specified in the defective title policy.
• The out of pocket expenses of altering or destroying 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.
• Liability for damages or compensation incurred in any proceedings regarding the risks specified in the defective title indemnity insurance, including incurred costs and expenses.
• All other costs and expenses incurred by the Insured with the written consent of the relevant insurance company

---

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 certain that the insurer will check the details on any proposal form thoroughly before any claim is paid out.

---

Defective Title Indemnity Insurance has limitations - Other considerations

Bear in mind, that if a covenant is breached and changes have to be made, simply getting monetary compensation from defective title insurance may be adequate for your client.

---

The above information covers to properties in England and Wales.