Using Title Insurance to mitigate risks for lenders in secured real estate financing

Certain legal or title related risks affecting the borrower, or the secured property, could bring these risks to fruition. Title Insurance can act as a vital risk mitigation tool to help guard against some of these risks, thereby providing enhanced protection and confidence for lenders.

Understanding common title risks in secured real estate financing

Lenders need assurance that (1) the borrower has, or will obtain, valid legal title (i.e. “ownership”) to the secured property; and (2) there are no other known or unknown issues that may materially impact on the value or permitted use of the secured property.

Some key risks that can threaten this for a lender include:

• Fraud and forgery: Fraudulent borrowers or forged title documents.
• Undisclosed interests and encumbrances: Unknown mortgages, liens, third party rights or other encumbrances.
• Other defects: Restrictive covenant or easement breaches, planning breaches, access issues or general defects in title that could impact on the use or value of the secured property.

How DUAL's Lender Protection Title Policy helps

DUAL’s “Lender Protection” Title Insurance Policy can help protect the lender's security interest during the loan term, offering support in several ways: Insured under the policy, the DUAL policy responds, even if no warranty was given by the borrower, or the event giving rise to a claim does not constitute a breach of warranty.

Facilitating a smoother financing process: Issues affecting ownership or use of the secured property may be disclosed by the borrower or identified by a lender during due diligence. Subject to underwriting, DUAL has the ability to insure these issues on a “known risk” basis. This provides an efficient and practical solution, and can help avoid delays caused by lengthy contractual negotiations or pre-conditions aimed at dealing with such issues. Safeguarding lender security: Coverage can ensure the lender’s mortgage security remains protected, even if unexpected title risks surface.

What’s covered under DUAL’s Lender Protection Title Policy

Specifically tailored insured risks include, but are not limited to:

• Fraud, forgery, or impersonation that affects the creation, registration, or enforceability of the mortgage.
• Undisclosed prior mortgages or interests that prevent the lender from obtaining the intended priority of security.
• Court orders or third-party claims that seek to set aside or remove the mortgage.
• Missing consents or authorisations that render the mortgage invalid or unenforceable.
• Title defects that adversely impact on the permitted use or value of the secured property, such as adverse planning issues or covenants.
  

Covered losses include, but are not limited to, the following:

• Legal costs incurred in defending the lender’s mortgage position.
• Shortfall in loan recovery if the borrower defaults due to a covered title risk.
• Costs of rectifying (or attempting to rectify) title defects.

For any questions about the available products or our appetite, please reach out to the Title Insurance team at titleinsurance@dualasiapacific.com.