Why Title Insurance is important in the age of e-settlements
26 February 2019
by Tony Rocha Newton
Insurance… there are so many different types. You always hear about that one guy who claims he slipped and fell off his own roof and got some massive settlement by dredging every cent he could from his house insurance. But that’s not the only kind of insurance we have. We also have car insurance, contents insurance, life insurance, accident insurance, disability insurance, public liability insurance… the list goes on.
But what is Title Insurance? Not many people have even heard of this one, but it is becoming far more necessary as we move into an e-settlements era. Title insurance is a form of insurance that has always been available to prospective purchasers of property in NSW and is a risk management tool with benefits that seem almost too good to be true.
Why do I need Title Insurance?
Properties come in many shapes and sizes: houses; units; townhouses; and vacant land. They’re all unique but share one thing in common, a “Title” … or “Certificate of Title” In previous years/decades/centuries. This involved getting a physical, printed title that covered your land & any interests on it (like mortgages, leases, other encumbrances). At settlement, even though you have a great conveyancer there may still be hidden issues with the property.
Basically, Title Insurance protects you against legal risks that can threaten the ownership of your property or affect your right to occupy and use your land. It includes obtaining things like
• a building inspection (that verifies structural integrity, so your house doesn’t fall over like your drunken uncle at Christmas)
• a pest inspection to detect… well… pests (the insecty-termite variety… not those pesky kids down the road)
• council certification to look for zoning non-compliance or unpaid rates & taxes
• an identification survey to show land boundaries and list any easements on the land or see if the property complies with relevant council requirements
• if there are any illegal building works you didn’t know about (like that mysterious subterranean “tomato” garden) or illegal sewage connections (yes, that is apparently a thing), or someone else builds a structure (other than boundary walls or fences), which encroaches onto the insured’s land. Australia’s obsession with renovation has fuelled this risk in recent years.
• Adverse affectations or resumption notifications by any government or statutory authority
Title insurance for residential and commercial lenders
So here in Australia Title Insurance can strengthen and enhance the legal interests in the mortgage and security for a LENDER while also protecting their legal interest against known and unknown title defects on a property. This is a no-fault indemnity, meaning if a claim arises, it is not necessary to prove negligence on the part of a third party. The fact that a party has suffered a loss covered by the policy is enough to trigger a claim.
Title insurance for owners
Most people don’t get Title Insurance since most people trust that their contracts & inspections prior to settlement are in fact correct & thorough, allowing purchasers to get vendors to fix issues before settlement day. Usually that is true. However, if an existing problem is not detected in any pre-purchase inspections, title insurance is designed to cover the cost of rectifying such problems. The costs are generally low with prices starting at around $330.
Types of electronic titling risks covered by title insurance
- Failure to obtain correct priority with mortgage registration
- Invalidity or unenforceability of the mortgage
- Fraud or forgery (hacking) & adverse possession
- Loss of priority through fraud or other circumstance
It is important to realise that title insurance should not be utilised to replace other processes like a building inspection, pest report, survey report and council building certificate, but to add an extra level of security. However, in the era of a privatisation Land Titles Office (or Land Registry Service now), Title Insurance gives you an extra level of protection that it is wise to adopt. Title Fraud… (insert crash of thunder here).
BOO! Scary stuff that word isn’t it? Title Fraud! But what does it really mean in today’s electronically based world? It has always been an issue, but it was always based on physical issues that could usually be resolved with a paper-trail. However as we enter an electronic age where the details of every property in NSW is out there on the web… every home, factory, church, utility, government office, parkland… the lot; it opens up the following scenarios:
• fraud, forgery or a processing mistake by LRS which could lead to someone else claiming an interest in the land;
• identity fraud (making it doubly important to confirm the identity of the parties involved in the transaction). To ensure you don't become a victim of identity fraud when dealing with land, it is recommended that stringent processes be adopted in verifying the identity of person(s) claiming a right to deal with the land.
Examples of forgery
A number of years ago, there were several instances of forged CTs. The criminals concerned focused on deceased estates where properties were vacant pending administration of the estate. The CT was then forged from details obtained by an LPI search.
The criminal then passed himself off as the deceased land owner and either sold the property using the forged CT to an innocent purchaser OR mortgaged the property using the forged CT to an unsuspecting financial institution. The criminal would then disappear from the scene after receiving the sale or loan proceeds. And that was BEFORE e-CT’s and electronic identity theft.
Fraudsters are getting smarter at separating people from their money (I’m also a Nigerian Prince who needs to store untold billions in YOUR account if anyone is interested) so what options do you have if someone mortgages or sells your property without your knowledge? The answer… is Title Insurance. It’s your best defence against a potential sea of internet fraud.