Possessory Title Indemnity Insurance
20/02/2020
Possessory title indemnity insurance is invariably compulsory if you're looking to buy a home which has possessory title only using a mortgage and is a convenient way of protecting your interests should someone make a claim on your property to the Land Registry.
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Considering buying a possessory title property?
The cost of buying possessory title indemnity insurance varies depending on the insurance provider and the value of the property. Indemnity insurance can't be purchased by you directly through the insurer as it requires the terms to be explained to you by a solicitor. You should speak to your own solicitor to organise you a quote from the indemnity insurance provider.
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What does a possessory title mean?
There are technically seven classes of title of property of which the highest is called absolute title, which is literally 'proof against the world'. In the days before the Land Registry electronically recorded people's ownership of property, you used to have to possess literal physical title deeds in your name to prove absolute title.
Now if you don't have title deeds or the equivalent modern electronic proof of ownership at the land registry, you can only claim possessory title to a property. This literally means your right to ownership comes about because of your possession of a property in question.
Title deeds might have been lost as a result of war or natural disaster or any number of other reasons, resulting in only possessory title to a property being available. Equally if no-one has claimed ownership of an empty property, you can, as long as you obey certain criteria, claim possessory title by living in a property for 12 years (or 10 years if you've made a representation to the Land Registry) and no other claim has defeated yours. This has sometimes been referred to as 'squatters' rights'.
These matters form a fascinating topic in themselves; interested parties are advised to read Possessory Title for much fuller information.
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Can you get a mortgage on a possessory title?
Yes you can even if it might seem that purchasing a possessory title might be only the preserve of cash buyers.
That said, you're well advised to consult an independent mortgage broker to help you find an appropriate lender because not all banks will consider loaning you the money for this class of property.
You can be virtually certain, however, that when you've found a lender who's prepared to finance your proposed purchase, they'll insist on you taking out possessory title indemnity insurance, which is quite often also known as adverse possession indemnity insurance.
This type of indemnity insurance is discussed more fully below.
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What does an adverse possession indemnity insurance policy cover?
A typical possessory title indemnity insurance policy is likely to work in the following ways.
- It insures areas of unregistered land which have been enclosed and used to the exclusion of others for a number of years.
- It compensates you if the paper title owner tries to claim the land and/or if a third party exercised adverse legal rights over the land, for example, rights of way.
- It works by covering any consequential fall in value the property suffers if the adversely possessed land had to be given up.
What are the exceptions and limitations?
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- You won't be compensated if you contact any party which may have an interest in the land.
- You won't be compensated for any adverse legal rights being contested or exercised at the time you took out the policy.
- A policy won't protect you against a failed claim for registration of the title at the Land Registry and any such application will result in the policy being avoided if a claim on it is then made. If, for example, you apply to register the title to some 'extra' land on the estate and this fails, then any policy claim will fail as well.
As with all insurance policies, you should always check the small print carefully and take appropriate legal advice.
What’s the maximum limit of indemnity you can get?
This varies according from provider to provider, however as a rule of thumb this might be £5 million for a residential property transaction and £25 million for a commercial property transaction. You should note, however, that if contaminated land is involved, you will normally have to pay more and some providers might not offer cover.
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Can you sell land with a possessory title?
You can sell a property which only has possessory title and this is not uncommon.
Under the law in England and Wales, the principle of caveat emptor - or let the buyer beware – continues to be in force as it does with more standard conveyancing transactions. The only difference is that because of the nature of possessory title any prospective buyer has more challenges when it comes uncovering full information about the title.
However if you as a seller have been in possession of the title for a considerable time, you'll be able to furnish a buyer with much more information than you would if, say, you were selling a property with possessory title purely as an executor of a will.
Lenders still generally lend to buyers seeking to purchase possessory titles. The Council of Mortgage Lenders states that where a title is based on adverse possession, possessory title will be acceptable if the seller is, or on completion the borrower will be, registered with the Land Registry as the registered proprietor of the possessory title.
Once the buyer has registered the possessory title, it can then be upgraded to title absolute (the best class of title available) when the land has been owned for 12 years or more.
What role does possessory title indemnity insurance play in selling/buying possessory title?
Indemnity insurances in general are tied to the property, not to the owner, so once you've purchased – your seller has purchased – adverse possession indemnity insurance then it can be simply handed on to the new owner when you sell the property.
If, however, there is a reason to increase the cover for example to reflect an increase in the value of the property, this can be a bone of contention between seller and buyer. Although as a rule of thumb sellers pay the premium this is something negotiable and once you've taken ownership, you should factor in that you might be expected to pay for any increased premium when it comes to you selling up in turn in the future.
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How much does possessory title indemnity insurance cost?
Possessory title indemnity insurance cost increases with how much a property is worth and therefore how much you have to be indemnified for in the event of a claim.
You can expect to pay at least £300 pounds generally, however, and for a property valued at £500,000 the premium might be in the region of £500 and upwards.
NB As with other indemnity insurance policies, you won't be able to shop around to compare prices in the way that you would with other insurance types because you can, as a rule, only buy indemnity insurance through a solicitor.
Considering buying a possessory title property?
Our experienced property lawyers can ensure you are guided through the process as efficiently as possible including the critical matter of arranging indemnity insurance if you're buying with a mortgage.
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