What is Title Indemnity Insurance?
Title indemnity insurance is a form of insurance which protects owners and mortgage lenders against financial loss resulting from challenges or defects in the title to real estate. It is sometimes referred to as defective title insurance, or legal indemnity insurance.
Title insurance is principally a product developed and sold as a result of an alleged comparative deficiency of land records. It is meant to protect an owner’s or a lender’s financial interest in real property against loss due to title defects, liens or other matters.
It defends against a lawsuit attacking the title, or reimburses the insured for the actual monetary loss incurred, up to the amount of insurance provided by the policy. Title indemnity insurance is ordinarily taken out by a purchaser of the property or by the institution lending money on the mortgage in an amount equivalent to the purchase price of the property.
Do I Need Title Indemnity Insurance?
Title indemnity insurance is essential when specific defects with the title have been identified, and is usually taken out during conveyancing processes as a defective title can make a sale difficult.
Certain defects can be difficult, costly or impossible to resolve, and whilst title indemnity insurance does not resolve the defects, it does provide protection if losses arise as a result of them. It can cover both known and unknown defects.
Unlike other forms of insurance, title indemnity insurance is not paid in monthly or annual premiums. Rather, it is a one-off payment that provides cover for the title. Title related lawsuits can be incredibly expensive and can result in mandatory construction or demolition work. Should a lawsuit occur, title insurance is usually well worth the cost.
Title Indemnity Insurance does not remedy the title defect – instead it provides financial compensation in the event of the defect causing actual loss.
If a potential claimant under the title policy is notified about the title defect, the policy will likely be invalidated. For example, the owner of a road over which access is taken should not be approached with a view to formalising access rights. Where there have been unauthorised alterations, there should be no application for retrospective consent. If there are plans to develop the property and the local authority is ‘invited’ into the property to inspect the new work, this is likely to constitute notification. Title Indemnity Insurance covers a property in its current guise and for its current use only.
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