Q. What is title insurance and how does it work?
Title insurance can protect both the lender and the borrower. The purchaser of a property pays a one-off insurance premium which indemnifies the insured ‘ usually the lender and the borrower ‘ against any defects in the title to the property in question. This means that if any new information comes to light about a title defect, which would lower the value of the property (or an existing defect) and a loss is suffered, the insurer takes on the job of putting the matter right, and bears the cost.
Title insurance is becoming increasingly popular within the mortgage industry, with many lenders using it on certain loans, or on a percentage of their business. Currently, SPML is the only UK lender to require title insurance for all its loans. Although it only came to the UK in the 1970s, it has been common practice in the US for many years and is now seen over there as being as vital as buildings and contents insurance.
The cost of title insurance varies from insurer to insurer, but is typically around £150 plus tax. Most lenders should allow this to be added to the loan.
Q. What areas does title insurance cover?
There are many problems that could occur with the title of a property which is being used as security for a mortgage loan. Taking out title insurance can attempt to solve them all. For example, after taking out a mortgage loan, the borrower may find there is a public right-of-way going through the property, or perhaps a boundary dispute that was not revealed by the pre-sale searches. Or, it might be that the owner has borrowed on a property which, at some time in its history, had been bequeathed in a will and this will has been found to be a forgery. In this case, somebody else would have a prior claim to the property. There may be other problems that occur after the purchase has been finalised, such as lack of access either on foot or by vehicle, restrictive covenants, and lost or missing deeds.
All these problems would mean the property will be worth less that the price paid for it, and title insurance covers both the lender and borrower against this outcome. If the problems have been caused by the negligence of the purchaser’s solicitor, then title insurance covers this too.
Q. What are the overall benefits of title insurance?
There are two main benefits to title insurance. The first is that by having a title insurance policy, the borrower and the lender are guaranteed that the mortgage is valid and enforceable and that the title is good and marketable. If one of the scenarios outlined above were to take place, it would be up to the insurer to deal with and not the borrower. The second benefit is title insurance speeds up the legal process and reduces the cost of conveyancing. Buying a home in the UK takes longer than in most developed countries, but by speeding up this process ‘ by not requiring solicitors to make time-consuming local authority, mining and Land Registry searches ‘ title insurance enables the contract to be completed and the funds to be advanced more quickly.
Q. What are the benefits of title insurance to lenders?
Title insurance offers the lender a higher quality loan portfolio with a greater level of security, as it guarantees good title. Title insurance can be used as a selling point as it gives both the buyer and borrower both extra security and enhanced speed of mortgage offer. Well-rated title insurance is also beneficial to lenders that securitise their loans, as it helps them get a higher rating.
Q. What are the benefits of title insurance to mortgage advisers?
If the lender is selling the title insurance as part of the mortgage deal, only part of the commission for the policy is earned by the broker. However, due to the speed of completion that is a result of title insurance, procuration fees will be received sooner. More importantly, and this applies to lenders as well, a speedy completion ‘ some transactions can take just five working days ‘ is likely to mean a satisfied customer, perhaps resulting in more business in the future, both from that customer and also from referrals.
Title insurance speeds up the agreement of mortgage contracts and the transfer of funds and this can be a major factor in satisfying the customer ‘ especially if the customer is remortgaging in an effort to have funds released quickly.
Q. What are the benefits of title insurance to borrowers?
For the borrower there are the advantages already discussed in terms of speed and security which are key factors in certain situations. Title insurance continues to cover the property if it is re-sold, so the borrower could use this as an additional selling point to attract potential buyers.
Q. Who are the main providers of title insurance?
Though there are several providers of title insurance in the UK, there are three major title insurers. These are:
• London European Title Insurance Services Limited
Telephone: 0118 957 5000
• Stewart Title Insurance Company (UK) Limited
Telephone: 01392 430 792
• First Title Insurance
Telephone: 020 7209 9900
Gemma Reece is an in-house lawyer at Southern Pacific Mortgage Limited (SPML)