A title insurance or better known in the UK as title indemnity insurance or conveyancing title insurance, is a cover used to protect any possible title defects that could potentially prevent the sale of a property.

Unlike regular insurance policies, title insurance covers you for potential past issues rather than future ones. Title insurance does not remove title defects, it only covers for any losses or legal costs that may arise from it.

How does title indemnity insurance work

A title indemnity policy protects the owner of the property or, in the case of a mortgage, the lender from potential losses of the property’s value due to a defective title. It is most often bought by the seller to prevent any defects from hindering the sale of the property.

Title defects are most often found during the conveyancing process when the property title undergoes multiple searches to ensure that there are no defects such as liens and/or encumbrances.

If a defect does arise, the property will remain unsellable until the defect is fixed. If a title indemnity policy exists, it can be used as an alternative to fixing the issue allowing the sale to proceed without delay. The insurance policy will be used to compensate for any loss of value or legal costs resulting from the defect.

Title insurance is also applicable If the defects were previously undetected and were found after the sale. It will be up to the insurer to decide how to resolve the situation as they will choose the most cost effective method.

Title insurance does not have any monthly or annual payments. It is paid as a one-off payment. The cost is usually in the hundreds and depends on the property value and the level of risk.

What makes a title defective

There are many causes which can make a title defective including:

• Lost deeds and title documents
• Lack of documentation
• Unmet building regulations
• Breach of restrictive covenants
• Incorrect access to the property
• Mortgage liens, maintenance liens and any other liens against the property
• Failure to get planning or buildings regulation consent
• Lack of easements for drainage/water, cables, pipes.
• Fraudulent or incomplete paperwork

A title insurance policy does not cover all the circumstances in one. Instead, when you are in the process of finalizing a title insurance policy, you will need to choose a policy that covers your specific circumstances.

Why title insurance is important in the UK

Property boundary disputes

Boundary disputes are the most common issues facing landowners in the UK. You may face boundary issues if boundary lines are not precisely defined. A neighbor could have a dispute about the placement of a fence, wall, tress or any outdoor structure. If the dispute cannot be amicably resolved, you may be able to claim insurance for the cost of the legal fees involved in resolving the issue.

Issues in title records

It is likely for issues to arise in records of an old home, particularly one that has belonged to one family for a long period of time. Most often you may find discrepancies, missing information in the title records or even lost deeds which will need to be rectified.

Existing breach of restrictive covenants

A restrictive covenant is an agreement that states what can and cannot be built on the property. This is mainly to make the area habitable for the neighborhood. Title insurance will cover legal costs or compensate for known and unknown breaches of restrictive covenants after the sale.

Title fraud

Property fraud is becoming a concern in the UK and the cost can be significantly huge for those affected by such scams. In a title fraud, the scammers will attempt to steal the real owners identity or transfer the property deal to themselves. An unsuspecting buyer will not know that the title is false and will proceed with the sale. Title insurance can help recover from this monumental financial loss.

When purchasing a policy you will need to notify your insurer the complete background of the defect. Failure to give the necessary facts can invalidate the policy.

A claim can only be made if it is accepted by the insurer and complies with the conditions of the policy. Key things to remember before making a claim are:

• You must not try to resolve any issues by yourself as this will invalidate the claim.
• You must not let a third party person know of the existence of the insurance policy as they can potentially claim against you.
• Policies don’t cover all risks. You will need to be certain of what risks you are covered for.
• You may not be able to claim if you have made any changes to the property
• The policy may not apply to any defects that happen after the purchase of the property

Conclusion

Title insurance is obviously an invaluable investment, especially to those embarking on property buying and selling. Ranging from simple issues to complex problems such as fraud, a title insurance can act as your ticket to get out of a sticky situation.

If you are unsure about how to proceed about getting title insurance, speak to the team at BVS Mortgages & Financial Services who can refer you to a specialist.

 * Approved by The Openwork Partnership on 15 Jul 2024