Back to basics: Title insurance
Paul Brett (pictured) is managing director of intermediaries at Landbay
Title insurance is one of those policies that people might have heard of, but are not quite sure what it is.
Basically, it insures the title of a property – but what does that mean?
Policies can be taken out by lenders or home buyers but in this article I shall be concentrating on lender’s title insurance.
Title insurance is an indemnity policy that covers lenders and home buyers in the event of problems, defects or disputes with the title of a property resulting in financial loss.
This includes known and unknown risks, including fraud, and challenges to the legal ownership of a property.
As well as transferring title risks from the lender to the insurer, title insurance can speed up the time it takes to process mortgage applications and cut down on completion times.
This is because the search element of the conveyancing process can be cut out as title insurance covers potential problems searches may bring up.
It also protects against title defects that were not brought up in previous searches.
By not undertaking searches the borrower can also save money on legal fees.
This can be useful now with the frenzied scramble to get housing transactions over the line by the end of the stamp duty holiday on 31 March.
The main bottleneck here is conveyancing and in particular searches.
Many local authorities are finding it hard to cope with the demand for searches as they are under-resourced with many staff working from home due to COVID-19 restrictions.
Apart from the local authority, other searches such as sewerage and water, coal mining, other mining and chancel repair, are also covered.
But title insurance is not just limited to searches, it also covers defects including planning use, structural alterations, conversions, incorrect documentation and leasehold defects.
Title insurance and remortgaging
In line with many other lenders, Landbay does not use title insurance for home purchases, but we will consider it for remortgages.
Search applications are a necessary part of the remortgage process, but the turnaround of search reports at the moment can be just as slow as in the purchase market.
If brokers recognise that title insurance may be useful for a client during a remortgage case, they can request that we include it.
We do insist that a solicitor from our approved panel is used as we know they understand the full concept of title insurance.
Of course, there is a cost to this, but we as a lender absorb that as the policy is in our interest in case of repossession.
The policy would ensure that if we incur any financial loss, it would be made good.
Title insurance for remortgage purpose through Landbay is therefore free to the borrower.
The other advantage to the borrower is that title insurance can help to speed up their remortgage application and also covers them if title problems are found going forward.
For brokers it provides the opportunity to introduce title insurance to their clients if it is suitable for them.