Title insurance is a form of insurance available to prospective purchasers of property. It is marketed as a risk management tool with benefits that almost seem too good to be true. People purchasing property in NSW must always remember that the principle of Caveat Emptor applies – Buyer Beware!
When purchasing a property, every effort should be made to ensure that the property is what it seems. This process is known as due diligence. In general due diligence will involve ensuring the contract includes the necessary documents and accurately describes the property, obtaining a building inspection to verify the structural integrity of and buildings on the land, a pest inspection to detect the possible presence of pests such as termites and Council certification and in many cases an identification survey. An identification survey will show the improvements on the property in relation to the land boundaries, list any easements on the land and comment on whether the property complies with relevant requirements.
Title Insurance is intended to be a supplement to the normal due diligence process when purchasing property. If an existing problem is not detected in any pre-purchase inspections, title insurance is designed to cover the cost of rectifying such problems. Title insurance may cover items including unapproved building changes (extensions or modifications), Buildings encroaching on the subject land, or encroachments by buildings on the subject land, items not complying with terms of an easement or restriction on the land, unpaid rates and other items.
One of the benefits of title insurance is the low cost. This is where the apparent benefits seem almost too good to be true, when weighed up against the cost of the insurance policy. Title insurance policies have variable fees based on each individual property. Title insurance is advertised with prices starting at approximately $330.
The items covered in a title insurance policy tend to largely include items included in an identification survey report. Unfortunately, many conveyancers have adopted title insurance in lieu of an identification survey report, although complete due diligence often does require an identification survey report. Problems encountered after purchase may be covered by a title insurance policy, although the wisdom of adopting title insurance in lieu of a survey must be questioned.
Once settlement occurs for a property sale, any defects or problems become the responsibility of the new owner. It would seem to be common sense to be aware of as many defects or problems before settlement in order to negotiate corrective action with the vendor or an adjustment in the settlement amount . It should also be considered that some defects cannot be rectified and restored to pre-purchase condition. For example, an illegal extension to a building which becomes subject to a Council demolition order may not be able to be re-constructed under the planning rules for the land. Another example may be a major encroachment on to adjoining land which becomes subject to a Council demolition order. Such items are often detected with the combination of an identification survey report and council building certificate.
It is important to realise that full due diligence, while potentially costing more than a stand-alone title insurance policy, can save a purchaser thousands of dollars in the event of a defect or problem which is detected after purchase. Title insurance should be utilised in conjunction with other due diligence processes including a building inspection, pest report, identification survey report and council building certificate.
Protect your biggest asset, ensure that due diligence when purchasing a property includes an identification survey report and does not rely solely on title insurance.