How Do Title Indemnity Policies Function?
Updated: Nov 18, 2021
Marc Rovner is an East Rockaway, New York, attorney who is active with Beta Abstract, LLC, where he provides real estate title insurance legal services. Attorney Marc Rovner has extensive knowledge of title insurance requirements in his home state and has taught on the subject in various college settings.
A title indemnity policy comes into play when a property is being leased out or sold and the prospective tenant or purchaser seeks confirmation that the seller has the legal right to transfer the property title. In addition, the buyer seeks to establish that no title defects exist that would impact their ownership interests. The same principle applies to lenders that take security on a property with the aim of selling in the future.
Common title defects include not having building regulations’ consent or planning permission for the type of development on the property. Another common issue involves lack of easements, or rights that benefit the property. This may include restrictions against using utilities or entering third party-owned land to repair utilities for a structure on the property. Title indemnity policies do not repair or cure the defect, but rather offer financial compensation in cases where the defect results in actual loss (up to stated limits). In most cases, the title indemnity limit is equal to the property value or the gross development value of a site to be developed. In addition, it may be equivalent to the mortgage amount obtained on the property.