Top 10 Tips: Title Insurance
1. It does not solve everything
While title insurance is useful in overcoming problems created by defective titles (or no title at all), it has its limitations. A lack of any documentary title at all to land upon which valuable buildings or where principal accesses run may not be acceptable even with title insurance. Most mortgage lenders will not accept this as satisfactory security for a home loan. Title indemnity insurance is primarily useful for possible adverse rights affecting land or the lack of documentary rights benefitting land that otherwise has a good title. For example, where there is undocumented but established use, where some of the title documents have been lost, where title is possessory only or to deal with matters such as mineral rights, chancel repair obligations or old restrictive covenants or rights that could be breached by any current or proposed use.
2. But where it is appropriate, title insurance should be the first thing to investigate
If you discover that there are adverse rights potentially affecting the land, gather evidence of the extent of the risk but no contact should be made with any party who might benefit before investigating whether title insurance may be available. Such contact will mean that title insurance will almost certainly not be available. If the matter is insurable, insurers will likely take the view that the beneficiaries of the right are unaware that they are entitled to it. Insurance may be required to cover a residual risk of enforcement of any covenants or rights after a release or settlement of a claim if there is a possibility that other third parties might still be able to enforce them.
3. Shop around
There are plenty of providers of title insurance, and it is a competitive market. You can approach insurers directly, or via brokers, and it is worth while cultivating relationships with two or more brokers and approaching more than one source for competitive quotes. If any insurer declines cover, this is a material matter that needs to be disclosed to other insurers. An experienced underwriter or broker may also have previous involvement with the area and problem, and may be able to bring their market knowledge in obtaining a competitive quote.
4. Do your due diligence – title
Investigate titles in the vicinity to see if you can find out the extent of land benefitting from the problematic rights or covenants. Your investigations may even reveal that a missing deed has been registered against other titles, so avoiding the need for insurance. Consider extending your title investigations, for example if there is a clear established access along a track that is not a highway, investigation at the local records office may be worthwhile and may disclose an old enclosure award that included awarding of a right of way over it. If there are possible chancel repair rights, check the parish website. There might have been recent repairs without recourse to landowners under old chancel repair obligations, reducing the risk to be insured.
5. Do your due diligence – planning
Existence of planning permissions either benefitting the property that you are involved with, or other surrounding properties which appear to be subject to similar covenants or adverse rights is an important element in assessing the risk for a title insurer. Check adjoining titles and Google Maps (or similar) to see whether there has been other development in breach of old covenants or rights, as this may be evidence that they have not been enforced routinely (or at all) over many years – a factor reducing the risk and therefore the cost of insurance.
6. The proposal is part of the policy
Keep carefully all the material that you assemble and put together with your proposal to the insurer, because the proposal forms part of the policy and a well-advised buyer will want to see this as part of their title investigation. If buying a property with the benefit of title insurance, ask to see the proposal and supporting documents, and check to see that full disclosure was properly made at the time insurance was taken out.
7. Subject to planning, prior to planning or limited interim cover?
When seeking title insurance in anticipation of possible future development, you will likely obtain much better terms if the cover is on condition that planning permission is granted without material objections. However, if there is a material objection based on the title defect or covenant you are seeking to cover or many objections overall, the insurance is unlikely to be available once the planning permission is obtained. Insurance can sometimes be obtained on a prior to planning basis, but it usually costs considerably more (often more than twice) but it will then underwrite a developer or promoter’s investment in seeking planning permission. Any contract with the landowners should include provisions between the parties whereby each agrees not to do anything that might jeopardise the policy. If the cost of such insurance is prohibitive or it is not available, the promoter or developer may instead be able to take out interim cover just for their promotion costs.
8. Who is covered? Check old policies
Title insurance has now been available for over 50 years. Care should be taken with older policies as many old policies do not cover (for example) mortgagees, tenants or even in some cases successors in title. An old policy may therefore need to be amended, or a new policy obtained to cover any gaps in the cover provided.
9. Disclosure – don’t let the cat out of the bag (especially if there’s a potential claim)
All title policies include a condition that the insured will not disclose the existence of the insurance without the consent of the insurer. A potential claimant who discovers that there is an insurance company standing behind the owner of the land will inevitably be encouraged to pursue their claim much more diligently, because they know that there is somebody who is being paid to pick up the bill! There are exceptions for bona fide purchasers, but all involved should be aware of the need to keep the existence of the policy confidential, to avoid a claim being refused by the insurer.
10. Third party protection – is it offered?
A common concern is that the party originally taking out the insurance failed to disclose a material fact to the insurer, which normally gives the insurer the opportunity to invalidate the policy. Recognising that this reduces the value of the policy to the insured and their successors in title, most policies do now include provisions which protect successors in title should the insurer discover that the original proposer has failed to make a material disclosure. Proposed policy wording, and the wording of existing policies should be checked to see whether or not this protection is included.
For more information on the above please contact Julie Sharpe or your usual Charles Russell Speechlys contact.