Don’t let your excitement turn into anguish and consider whether you need title insurance. We all know how exciting it is buying a property because it often marks positive change for people. From a first house to an investment and every transaction in between property means a lot to us.
Most people assume that the paper work and professional inspections will disclose everything about the property. However, even with the expert advice of a solicitor/conveyancer and building inspector, there can be hidden issues.
People presume incorrectly that the professionals they employ to make the property enquiries will cover all problems and that they are protected. They also assume that a problem they personally sited will be picked up in a report – this is not always the case! So, what are some issues that may warrant title insurance?
- DIY renovations on the property built without council approval;
- planning or zoning laws that determine you can’t live in your property;
- structures built on to your land without your consent or knowledge;
- incorrectly calculated land tax, council rates, water rates or strata levies and
- identity theft and fraud, which could involve scammers selling your property to another owner or a fraudulent mortgage being taken out against your property.
Organisations are always trying to sell you product and services and they often create a potential threat to solicit your attention. Some of the protections you are paying for when you buy title insurance may already be contained in the Torrens system in Victoria.
In Australia, almost all land is subject to the Torrens system of land registration. Your title to land is obtained on registration of your interest with the Registrar of Titles in Victoria. The state guarantees the validity of your certificate of title, and administers a compensation fund for people who, without fault of their own, have lost an interest in land because of the operation of the Torrens system which is some of the risks Title insurance says it covers -check.
Some title insurance policy protections state are that “defects” (such as illegal building works or unpaid rates or land tax) will be covered. These typically are covered in the buying process and do not need extra cover.
Alternatives to title insurance would be to use your conveyancer or solicitor to make the proper enquiries. Go through the property yourself, list any irregularity and ask the appropriate professional to investigate those specific irregularities as well as the usual checks – then ensure you are satisfied with the report. Also, you may request a survey report (to confirm whether there is anything on your land encroaching on your neighbour’s land, or vice versa).
If your solicitor or conveyancer fails to make the proper inquiries you may be able to claim damages, and call on your conveyancer/lawyer’s professional indemnity insurance policies in the event they fail to perform the searches correctly.
Ask your conveyancer or solicitor how the cost of doing these searches compares with the cost of title insurance, and whether they have professional indemnity insurance to cover this sort of work.
You should ask the lawyer or conveyancer assisting you with the purchase to explain the advantages and disadvantages of title insurance for you. The professional must disclose if they have any arrangement with the insurer whose title insurance they are recommending.
So, title insurance may be very valuable for some purchasers because the property may have unforeseen complications. You may consider new strata builds one such group, or perhaps to ensure the current use of a property is viable going forward (granny flat) as a reason for title insurance. There are instances where such an insurance is not only useful it may prevent financial ruin.
The bottom line is that if you could not establish the protection prior to the exchange title insurance may be worth having to avoid being burdened with problems going forward.