Make the most of your title cover
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Prospective purchasers are always keen to ensure that they have high quality, marketable title to the properties they wish to buy.
Title insurance is intended to provide cover against defects in title and so give some protection to lenders against financial losses arising from problems or defects with the ownership or legal title of properties.
It has been widely used by lenders with regard to remortgages as due diligence should have been done at the granting of the mortgage meaning some of the usual conveyancing searches are not required, thus significantly streamlining the process.
But it can be used in general circumstances too. In fact, title insurance is widely misunderstood and as a result many lenders fail to maximise the benefits it can bring.
It is not my intention here to comment on title insurance as a product but instead to provide some tips on how to get the best value from a title insurance policy in circumstances which give rise to a claim.
Title insurance can cover a range of issues from lack of evidence of plann-ing permission or building consent to breaches of restrictive covenants and rights of way belonging to third parties. But the conditions of the insurance are often strict and claims can fail due to simple errors.
In the rising housing market of recent years fewer title insurance claims were made as the value of properties rose sufficiently and the competition to buy was such that it compensated for less significant title problems.
But the average property price has fallen by around 20% since August 2007. As a result, many lenders are faced with assets that have fallen below the balance outstanding on the mortgage. Buyers are no longer willing to overlook title defects and this can result in properties being unsaleable.
In fact, they can become liabilities in circumstances where lenders remain responsible for the security of the property and rates.
With a higher number of properties being repossessed title insurance has become an even more valuable loss mitigating tool. We all know that time is of the essence when selling a repossessed property, especially in a depressed or falling market, as arrears continue to mount up and shortfalls increase.
So it is vital that asset managers, Law of Property Act receivers and selling solicitors consider and identify potential problems which could disrupt the sales process to allow for smooth transactions and the possibility of making successful claims.
For these reasons, title issues need to be at the forefront of lenders' minds. Greater understanding of the mechanics of claims will mean cases can be resolved quickly either by putting a defect right, providing a bespoke policy to cover the defect or paying out a sum equal to the diminution in value caused by it.
A recent example of a successful title insurance claim I have seen related to a restrictive covenant which provided a distinct and narrow usage clause. This had a significant detrimental effect on the value of the property and recovery was made from the insurer for the difference in value of the property with the restrictive user clause and without it. This difference added up to more than £150,000.
Assuming that lenders have policies in place, solicitors are obliged to consider if claims could be made under title insurance. The first thing to check is whether the defect is covered.
Second, as with all insurance policies, check the terms of the policy. For example, an insurer must generally be notified at the earliest possible opportunity and if you do not comply with the terms of the policy you could miss your chance to claim.
As a rule assets should be put up for sale as if there are no title defects because defects can often be dealt with by way of further indemnity policies.
But in some cases assets will not be suitable for sale - for example, if the interest has been forfeited - or will only be capable of sale only at a considerably lower figure - for example, due lack of planning consent.
It is important to collate all the relevant information and present it to the insurer with regard to the terms of the policy and the general principles of contract and insurance law, providing reasoned arguments as to why the defect in question is covered by the contract of insurance backed up with evidence of its value.
Title insurance is a contractual claim and it must be considered whether or not the defect which has caused loss is an insured risk. This means that contributory negligence, a popular theme in professional negligence claims, cannot be raised by an insurer in a title insurance claim. It is separate from claims in negligence against professional advisers and shortfall claims against borrowers, but these must be considered in conjunction with title insurance claims as it is possible that there will be elements of loss which do not flow from the insured risk.
Furthermore, completing solicitors are under a duty of care to the client and may remain liable for losses caused by the transaction.
But there is no possibility of double recovery as the terms of most policies require the lender to account to the in-surer for subsequent recoveries, and the insurer will usually have a right of subrogation of any future claims.
It's no secret that the property market is grim at the moment and title insurance is an important tool in mitigating risk. It can help ease shortfalls on properties in terms of both rectifying defects and making payments to lenders to cover losses caused by defects.
It is important that careful consideration is given to claims under title insurance policies to facilitate the best chance of recovery.
Source:
Lending Strategy
