The perfect title
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28 February 2014
The US practice of title insurance has long been a threat to conveyancing practices in the UK, but it could also offer new opportunites, writes Mervyn Rundle. Mervyn Rundle is a founding partner of Rundle Walker. Last year he went to the US to investigate title insurance.
Title insurance has long been an unwanted visitor from the US legal shores. But does it really mean instant redundancy for conveyancing solicitors in this country?
Title insurance evolved in the US primarily because, within the various states, there are many different systems of conveyancing, some involving serious risk.
For instance, although most US states operate some sort of deed-recording system, it is generally a first-past-the-post system for priority of title. Although we have those risks covered in the UK by search priority, that is not the whole story.
So, what are the main advantages of title insurance? Really, the term is a slight misnomer, as it covers much more than pure title defects. Although it does not run in perpetuity, it is closer to a transaction insurance, offering parties to the policy a comprehensive form of insurance cover for all title-related matters.
Effectively, it precludes the need for title deeds and land certificates, as all disputes are settled by direct recourse to the policy. So, it provides comfort for individuals and enables lenders to ring-fence their lending book and assists in securitisation.
On the surface, it would appear to be superfluous to the UK system, because of the protection offered by the solicitor’s investigation of title, combined with the security (and insurance) provided by the Land Registry.
And it is likely the house buyer, given those protections, would still prefer what we offer a perfect title rather than financial compensation offered by title insurance.
But the lender’s position is rather different. And except in cash purchases, it is the lender who controls the transaction and many of the legal requirements.
Nowadays, the lender has no intrinsic interest in the property, which exists merely as security for the loan in case of default. He needs to know only one thing: that he can realise the security without difficulty.
And herein lies potential danger for the profession: by focusing on the needs of the individual borrower, those of the infinitely more powerful lender are perhaps being ignored.
At present, in order to avoid conflict, separate representation may be imposed on the lender. But what is to stop the lender from adopting other ways of easing this burden? In his position, which would you find more attractive: dealing with thousands of individual solicitors with individual reports on title or, alternatively, one insurer, who takes over the whole time-consuming process?
However, let’s take it one step further. If the insurer provided comprehensive insurance, there would be no need to store deeds. Think how much the Halifax could save if it closed its deed storage facilities and, instead, used its direct access to the Land Registry. There would be massive savings from day one. In the longer term, profitability would increase as they could concentrate on their core business and trade from their loan books.
This prospect could leave lawyers in a state of panic, but it need not be the case. Title insurers need specialists to investigate title as they are more interested in taking premiums than paying out.
They need to be convinced that it is in their interest to use panels with proven specialist skills rather than do it in-house. There is a growing trend across all sectors for contracting out.
But, before drawing any overall conclusions, the borrower must be considered.
If lawyers could offer clients comprehensive insurance as opposed to negligence cover, it could mean endorsing title insurance, but with the client paying the premium rather than the lawyer.
The profession would be the first to offer this breadth of protection and the PR opportunities are compelling, especially in the face of growing public cynicism towards solicitors.
If this were coupled with a non-subrogation deal with SIF, it could mean a reduction in premiums, as title insurers would be carrying some of the risk. A two-fold opportunity, perhaps, especially as the Government is already committed to review the present system.
There is no doubt that change is in the air. By initiating a dialogue with title insurers or adopting some of their ideas, lawyers would be leading change rather than following it.