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Slowly the idea of title insurance has been spreading. US title insurance companies started operating in Canada 11 years ago and have seen a rapid growth in their business. The concept of title insurance has also moved to Europe and Australia. Australia, like the UK, has a very comprehensive land title system and so generally property owners do not fear that there will be any unforeseen problems with ownership of their property. However as we enter into an era where speed is everything and bank’s are becoming keener to ensure that their money is protected, the call for title insurance is becoming greater.
What is Title Insurance?
There are two types of title insurance:
1. Defective Title Insurance – this is already widely used in the UK. This is taken out where a party becomes aware of a defect in a title (generally when investigating title prior to purchase) and subsequently takes out insurance to protect against that defect materialising into an issue that threatens the use or ownership of the property.
Examples of common defects include:
• a lack of a right of way to get to the property
• a lack of proper rights to run drains or other pipes, wires or cables over a neighbouring property
• a missing document of title
• a management company that owns a block of flats having ceased to exist.
2. Good Title Insurance – this is generally used to help manage the due diligence involved in large portfolios of property in a limited time and within cost constraints.
It is the second of these that we will consider below.
What are the benefits of Title Insurance?
The main benefit of title insurance is that it removes the traditionally lengthy process of property due diligence from transactions, and so can speed up transaction times considerably.
A title insurance policy will also cover defects that could be overlooked in a particularly fast-paced transaction, and for this reason various banks are making it a lending requirement that insurance is provided in any event.
The Negatives
It is important to realise that title insurance does not automatically solve any problems that may subsequently come to light with a property. What it will generally do is provide funds for trying to sort a problem out, and if it can’t be sorted out, it will provide compensation for the loss in value caused by the problem.
For example, you may buy a property that is accessed by a private road. It subsequently comes to light that the property has no rights to use this private road, and the owner of the road takes action to prevent you using it. Unless the insurance company can find evidence to show there is in fact a right of way, then they will try and negotiate with the road owner to buy the necessary right of way, but more often than not they will simply pay a sum to compensate you for the associated loss in value. Technically you are not out of pocket, but the likelihood is you would rather have found out about this problem beforehand and not bought the property in the first place.
Conclusion
Johanna OrrTitle insurance provides valuable protection for people and businesses that simply must have a transaction completed as quickly as possible. However, if the time is available, there is no substitute for going through the traditional due diligence process. It is surely better when purchasing a property to do your homework thoroughly and not have any nasty surprises spring up on you years down the line.
As technology progresses, and more and more property information is publicly available on-line, the delays associated with due diligence (waiting for searches, copy title documents etc.) are decreasing significantly. Hence we may well reach the point where it is as quick to carry out due diligence as it is to obtain a title insurance policy.
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