What Is Defective Title Insurance?

Any potential threat to a current owner’s full right or claim to sell a property is referred to as a title flaw. A public-recorded problem, such as a lien, mortgage, or judgment, gives another party a claim to the property.

Who pays for defective title insurance?

It’s a one-time fee. There is no need to pay an annual fee. The policy is frequently paid for by the seller in order to save the transaction. If the seller, on the other hand, refuses to pay, you’ll have to negotiate who pays the bill.

What is defective title indemnity insurance?

Defective title indemnity plans are commonly employed in the real estate sector to cover undesired restrictive covenants and patch gaps in defective titles. Conveyancing indemnity plans are used by lenders for residential and business remortgages.

What does a defective title mean?

Many homeowners on the Hibiscus Coast with cross lease titles are unaware that their title may be defective until they go to sell their home.

Cross leases are unique in that all owners of each flat or house own a portion of the total property, then lease specific areas of the land back to the individual home owners, or lessees, until the Resource Management Act of 1991 came into effect.

These leased sections, which comprise the home’s footprint, any existing attached decks or garages, and any exclusive use zones, are detailed on the Flats Plan, which is recorded with Land Information New Zealand, at the time of the cross lease. Other rights, such as common area upkeep, are also listed on the title.

Following owners of each flat may expand, construct, or change a deck, build a conservatory (even over an existing deck), or even install a garage, and physically alter the exclusive use zones, but they are unaware that these alterations may invalidate the title. Even obtaining building consent for the construction does not eliminate the danger of a defective title because the Council is not responsible for ensuring that the title is in good legal standing.

Any alterations to these leased areas require the permission of the other landowners. A fresh survey of the exclusive use areas is necessary, as well as the issuance of a new Flats Plan, both of which incur legal and surveying expenditures. Correcting this scenario could be more difficult than planned if your neighbors are tough to deal with.

As a buyer of a cross lease property, you should review the Flats Plan for legality as part of your due diligence.

This is done as part of a registered valuation, or your conveyancing lawyer should investigate if no valuation is conducted. It entails looking up the title and ensuring that the exclusive use areas currently in use match those listed on the Flats Plan.

A faulty title can be utilized by a buyer to negotiate a lower price from a seller in the expectation of future expenditures to rectify the problem.

Lenders may also refuse to finance a cross lease property with a faulty title, particularly if the borrower is heavily leveraged.

While your existing neighbors may be pleasant and unconcerned about any difficulties that have been detected, the same cannot be said for future owners of adjoining properties. The only true security is to correct the faulty title or convert the cross lease property to freehold. It is a good idea to obtain professional counsel in any case, or if you are afraid that you may have a defective title.

Vicki Phillips joins Hibiscus Matters’ new Valuation column. Vicki is a Registered Property Valuer with over 11 years of experience and a First Class Honours degree in Valuation & Property Management. She and her family moved to Orewa in 2002, where she runs her business, Valuation Rodney, which serves the North Shore and Rodney regions. The piece will be published twice a month.

How do you treat a title defect?

A mortgage can be disposed of in a variety of ways after it is recorded as a lien against real estate. Discharge by a third party, such as a title insurer, a court-appointed personal representative, or an affidavit executed by an attorney at law or attorney in fact; discharge by court order; and, in some limited cases, discharge by a filing by a third party, such as a title insurer, a court-appointed personal representative, or an affidavit executed by an attorney at law or attorney in fact.

What is a title defect UK?

When a property is being sold or leased out, the title of the property is frequently reviewed. The buyer or prospective renter under a lease will want to know if the seller is legally allowed to transfer title to the property that the seller has agreed to sell and if the title is free of defects that might harm the buyer’s interests.

If there are any title problems that need to be remedied or disclosed to the buyer, the seller or landlord must first determine if they exist.

A lender taking security over a property must prove that there are no title flaws that could influence the property’s value or the lender’s ability to sell the property to recover its security.

A title defect is a feature of the land that is absent or has a negative impact. The following are some examples of common flaws:

  • Inability to obtain appropriate planning authority or building regulations consent for the property, such as a Completion Certificate
  • Where title documents may contain covenants or easements impacting the property, they are not made available.
  • Easements or rights that benefit the property but are not included in the title, such as the lack of rights of way, utility rights, or the right to enter onto land owned by a third party to repair utilities servicing the property.
  • A title condition that has been violated, such as if the property is subject to a restrictive covenant prohibiting a specific use or prohibiting development that has taken place on the property.

A title indemnity policy, also known as legal indemnity cover, may be available in the event of a title defect to protect the property owner against loss resulting from the defect, such as a decrease in the property’s value or the payment of compensation or damages.

A title indemnity policy does not correct the title defect; instead, it compensates you financially if the deficiency results in actual loss, according to the policy’s limit of indemnity. The valuation of the property in question, the amount of the mortgage being sought, or the gross development value of a site to be developed are all examples of this amount.

When a title indemnity coverage is necessary, it is typical for the insurer to ask the property owner to respond to a series of questions about the defect that has been discovered, as well as produce specific documents as proof to aid in determining the risk caused by the defect. For example, the seller may be asked to supply planning documents, a statutory statement verifying the property’s or land’s use, and copies of the titles impacted by the deficiency.

How long does an indemnity policy last?

Sellers aren’t the only ones who need indemnity insurance. Instead of correcting problems in a property, buyers can acquire a policy. Instead of requesting their seller to fix a problem, a buyer purchases insurance to assure that their mortgage application will go through smoothly if they are otherwise satisfied with the home. If the property loses value as a result of the fault, this insurance will cover both the mortgage lender and the buyer. The policy normally covers situations that are low-risk in terms of lowering the property’s value, but if there is a loss, it will almost certainly be large.

Do mortgage lenders accept indemnity insurance?

Local authorities’ processing of local searches has slowed significantly, and in some circumstances, come to a halt, since the COVID pandemic began.

The availability of indemnity insurance provides an alternative to a comprehensive local search result, although most lenders will only take indemnity insurance on re-mortgage instances. However, as a result of the delays, some lenders are modifying their policy and will now allow indemnity policies to be taken out on acquisitions if the following conditions are met:

  • The client understands the dangers of proceeding without first conducting a local search.

The risk to buyers is that they will be buying without viewing a complete local search result, and hence will be unaware of any negative entries that might otherwise be disclosed. While indemnity insurance may give protection, it will not eliminate the difficulty and stress that an adverse entry might cause, and it may stymie any future sales until the problem is rectified.

It’s possible that the loosening of the requirements will be temporary, but if the vast majority of mortgage lenders take this strategy, it will undoubtedly help to clear some of the existing property market bottlenecks.

What is indemnity insurance for access rights?

The purpose of an Absence of Easement Indemnity policy (also known as an Access Indemnity policy) is to give property owners and developers peace of mind.

When there is no (legal) right-of-way to get access to a property (by vehicle or on foot) and no (legal) right to utilize the services running through or over someone else’s land, an absence of easement indemnity coverage may apply.

This covers the costs of defending the continuous use of existing accessways (on foot and by automobile) and existing services that have been in use for the past 12 months without complaint or approval from the current owner, as long as they have been utilized on a regular basis.

If you have repeatedly traversed an unregistered stretch of land, such as a verge, to access your property for the past 12 months, you may consider purchasing an absence of easements indemnity policy. Its purpose is to assist you in defending your right to access the land in the event that access is prohibited by funding your legal costs.

Please note that we do not include positive covenants (which force you to do something rather than not do something) or payments for services, such as installing and maintaining a fence.

What does title possessory mean?

To establish absolute title, the owner must present the title deed as well as an unbroken line of documents dating back at least 15 years to the Land Registry. In legal terms, this is the pinnacle of title.

What is “Qualified Title”?

Qualified titles are hard to come by. They are property titles that have been presented to the Land Registry with a specific flaw that cannot be overlooked.

For instance, if a question mark exists over a portion of a garden that may have been sold to a neighbor, the title can be registered subject to the rights of anyone who has a better title to that portion.

What is “Possessory Title”?

Possessory title simply indicates that the applicant lacked all of the required papers to meet the Land Registry’s absolute title requirements.

Owners had to provide tangible title documents in their name to prove absolute title before the Land Registry began storing property records electronically. You can only claim possessory title if you don’t have the title deeds or haven’t registered an electronic evidence of ownership with the Land Registry.

There’s nothing wrong with a property having simply a possessory title because there are a variety of legal causes for missing documentation. Floods and fires, for example, may have destroyed or stolen original deeds.

When original documents are not available, the applicant must obtain copies and explain the situation in their application.

How long does possessory title last?

The owner can apply to the Land Registry for an upgrade to absolute title after the land has been registered with a possessory title for at least 12 years.

Possessory title and adverse possession – what is the difference?

Adverse possession, often known as squatters’ rights, refers to taking land that belongs to someone else or is unregistered and then treating it as your own.

You can apply to the Land Registry to become the owner of the land if you meet the following requirements:

  • Without opposition or consent, you have owned the land to the exclusion of all others.
  • By enclosing the area and maintaining it, you have demonstrated your desire to own it.

To be eligible for adverse possession, you must demonstrate that you have met the conditions for at least the last ten years. After 12 years of occupation on unregistered land, an application can be lodged, but only after 10 years on registered land.

Any persons having an interest in the land will be notified by the Land Registry, who will have the chance to object to the application and evict the squatter.

When an adverse possession application is granted, the owner is usually given a possessory title because the title deeds cannot be produced as proof of ownership.

What are incurable title defects?

Certain real estate plots may possess problems that cannot be remedied in a reasonable amount of time. An incurable defect is what happens when this happens. Another example is when a toxic waste dump is adjacent to a piece of property.