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Defective Title Insurance
Defects in title to land vary widely. Some are serious, some unfathomable, and some are merely theoretical. In any event, the current approved option appears to be that, rather correct the title, the buyer is asked to accept a 'Defective Title Insurance' usually paid for by the seller. It is quick, doesn't appear to require a great deal of thought, and works. Each case must be assessed on its own, and we urge clients to be careful before accepting such insurance.
A good title means that you purchase the house, and live in it with no challenge. A marketable title is one which can be sold without difficulty. A third party may have some imagined grievance, and commence proceedings, but a good title should give no indication that any such attack was to be expected.
These questions arise when you buy. We are often able to confirm what the seller says, which is that the house could be purchased, and that you could probably inhabit the house perfectly happily, with no objection being raised. However the real test of whether you bought the right house, is whether you have any difficulty when you come to sell it. Conveyancing standards are being raised, and titles which might have been accepted even five years ago, are now being rejected as not marketable. Our own saying is 'Any fool can buy a house, selling is the test'
The difficulty with title insurance is that if some objection does arise, the insurance means that, if the claim is accepted, you may be involved in substantial litigation. Even if you know that the insurance company will pay up if you lose, the house can be unsaleable for several years. We also all know of situations in which insurance companies, for what ever reason, reject liability. After a claim is made reasons tend to be found as to why and how the insurance proposal was wrong.
You buy the house to occupy it as a residence. Knowing that you would be compensated to a certain degree if the house were lost is not necessarily a particular advantage. We are usually attached to our house we occupy by emotional strings, and not merely financial ones.
Last, when you come to sell the house, the existence of title insurance is not a selling point. A buyer who has the choice between a property which has no need of title insurance and one which has title insurance, is likely to prefer the one without insurance.
There are situations when title insurance is an acceptable safeguard. There are many situations where title insurance is a limited remedy and an inadequate remedy. We emphasise again that each particular case must be taken on its own merits.
It should be noted that if the Land Registry did what it was supposed to do, to correct defects in title, there would be no need at all for title insurance. Typically, defects in title arise from some historic confusion or loss of deeds. The prime aim of the Land Registry when established was to make weak titles good. They seem to have forgotten this, and there are clear examples of them creating difficulties unnecessarily with heartfelt, ok bored, cries of 'It's policy.'
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