How to protect your ownership of real estate. Title insurance

Recommendation points

• Title insurance as an effective protection tool
• What are the benefits of insurance
• Pitfalls or in what cases the insurance does not work
• Apartment with encumbrance
• Buying an apartment in a new building
• Mortgages and title insurance: what to look for
• Insurance term
• Title and property insurance
• Features of insurance
• Summing up

In recent years, more and more people who purchase housing are faced with problems when their ownership is questioned and in some cases transactions are canceled. This is especially true for the secondary real estate market, where you can face fraudsters or unexpected heirs of the previous home owner..

You ask: “Is it possible that respectable citizens cannot protect their rights in any way?” They can! It is for such situations that the title insurance system has been developed, which provides insurance against the risk of loss of ownership of real estate..

Let’s take a closer look at what it is..

Title insurance as an effective protection tool

As stated above, title insurance is insurance against the risk of loss of real estate due to the loss of ownership of the property. In Europe, almost all real estate transactions involve title insurance. In our country, this is not yet so widespread, since not all citizens know about this type of insurance.

In Russia, title insurance is generally used only for mortgages. This is the so-called compulsory title insurance..

In all other cases, when buying a home, when voluntary title insurance is possible, citizens are in no hurry to take out this insurance. There are several reasons:

• high cost of insurance (1-5% of the cost of the purchased apartment);
• the confidence that nothing will happen to their apartment, since the realtors checked the documents and found nothing suspicious;
• low level of public awareness of this type of insurance.

However, despite the assurances of realtors and a more competent approach of buyers to the transaction at the stage of preparation and verification of documents for the apartment, the risk of losing the property is still quite high..

By concluding a title insurance contract with an insurance company, the buyer is entitled to insurance compensation in case of loss of ownership of the purchased property.

It is important to understand that the insured event occurs only when the court decision enters into force: on the recognition of the purchase and sale of the apartment as invalid or on the satisfaction of the owner of this property to return the acquired property, in the event that the property was removed from his possession as a result of illegal actions other than his will.

That is, title insurance guarantees the buyer damages only in cases where someone infringes on his ownership.

Margaret L. Been. Private world

What are the benefits of insurance

There are a lot of situations in which a completed real estate sale and purchase transaction can be invalidated. For example:

• the apartment was not bought from the real owner;
• the seller suffers from mental disorders and has been declared legally incompetent in accordance with the established procedure;
• the acquired property is under judicial arrest due to the debts of the former owner;
• the heirs of the former owner present their rights to the apartment;
• the seller hid the fact of the spouse’s disagreement with the transaction;
• the seller’s representative has expired or the power of attorney has expired;
• the documents for the purchase and sale transaction were drawn up incorrectly or have errors;
• when completing the transaction, fake documents were used;
• the transaction was made under the influence of threats, violence or other fraudulent activities.

Of course, someone may say that upon termination of the transaction, the seller is obliged to return the entire amount to the buyer, but even here you cannot be sure that you will get everything back. For example, the seller simply does not have this money or the apartment was sold to you by scammers using forged documents, it can be very difficult to collect the entire amount in such situations.

It is from such troubles that title insurance is designed to protect the buyer.

Also interesting is the fact that when concluding an insurance contract, the insurer may include a clause stating that the insurance company, in the event of property disputes, takes all legal costs on itself. It is very beneficial.

If there is no such clause in the contract, then you risk spending a large amount on lawyers and lawsuits. Therefore, it is imperative to pay attention to this when concluding an agreement..

Pitfalls or in what cases the insurance does not work

As with any other type of insurance, there are risks that the insurance policy does not cover. Unfortunately, it is impossible to protect yourself from everything, so we will consider situations in which the insurance does not work..

Apartment with encumbrance

Since title insurance is designed to protect the buyer only from the risks associated with the loss of ownership of the purchased property, in the event of an encumbrance, it does not apply.

For example, you bought an apartment, lived in it for a certain time. Suddenly, a person who has been released from prison appears on your doorstep. Even if he never had property rights to your living space, but was once registered in this apartment, provided that he has nowhere to live, he has the right to live in it, according to Art. 40 of the Constitution of Russia.

Ilya Repin. Didn’t wait. 1884

In this case, title insurance does not work, as no one claims your ownership. And you will have to share living space with a stranger.

Buying an apartment in a new building

It should also be remembered that when buying an apartment in a new building, you cannot conclude a title insurance contract even at the construction stage. You pay the developer money, but you don’t get the apartment right away, since the house has not yet been commissioned. If you want to protect yourself from the bankruptcy of the developer company, from double sales or other problems that may arise during shared construction, there are other tools, including insurance ones. However, it is title insurance that does not work here..

Mortgages and title insurance: what to look for

Title insurance for a mortgage also has its own characteristics and it is important to know this. The fact is that the right of ownership until the moment of repayment of the mortgage loan belongs to the bank, therefore, in the event of an insured event (loss of ownership), the bank will receive the insurance compensation. Moreover, it will amount to the amount of your loan debt, and you will not get anything!

If you want to insure your losses as well, you will pay off the loan and bear the costs, then you can conclude another insurance contract. Yes, you will have to incur additional costs here. However, in case of loss of ownership, the insurance company will reimburse the full cost of the apartment. And you will get the difference between your debt to the bank and your insurance claim.

Illustration for the fairy tale by A.S. Pushkin’s “The Tale of the Fisherman and the Fish”

Insurance term

According to the law, the limitation period for disputes related to real estate is 3 years. Moreover, it begins from the moment when the person learned about the violation of his rights. Therefore, they may come to you even after 5 or even 10 years. Here it is important to pay attention to the fact that the insured event occurs only at the time of a court decision on recognizing your transaction as invalid. If at this point the insurance contract is no longer valid, you will not receive any compensation. In our country, lawsuits are often dragged out for years, so title insurance for 1 year is considered the most unprofitable. It is recommended to conclude a contract for at least 3 years, the optimal period is 5-10 years.

Title and property insurance

Also, do not confuse title insurance with property insurance. In case of loss of an apartment due to fire, flood or other emergency, the insurance company will not reimburse the value of the lost property under title insurance.

The object of title insurance is only the property right, against the loss of which you yourself and insure.

Therefore, emergencies or actions of third parties that led to damage to the apartment are not insured. To protect yourself from material losses in these situations, you need to draw up a property insurance contract.

Features of insurance

Since the cost of title insurance directly depends on the potential risk of loss of property, before concluding an agreement with you, the specialists of the insurance company will carefully study the history of the apartment being purchased. At the same time, the costs of this study are most often borne by the client..

At this stage, the insurance company assesses its potential risks and in some cases may refuse to conclude a title insurance contract. This happens when experts discover suspicious moments in the history of an apartment and there is a clear threat of loss of ownership of this property. If no suspicious episodes are found in the biography of the real estate, then there are no obstacles to title insurance..

The cost of insurance in this case varies from 1 to 5% of the value of the property. The price is determined based on several factors:

• insurance term;
• the value of the property;
• the history of the apartment (the number of transactions with the apartment, whether the former owners have relatives, children, etc.);
• list of insured events covered by the insurance.

At the same time, the history of the apartment has the greatest influence on the value. So, for example, if the apartment was sold only once and there was only 1 owner, then the cost will be minimal. If the apartment often passed from hand to hand or the previous owner inherited it, then the cost will increase several times. Since in this case it is practically impossible to track all potential applicants for this property. It also affects how much time has passed since the previous deal with the apartment was concluded – the longer the period, the lower the risk that any problems will appear.

Vilkov Boris. Zoykina’s apartment. 2008

Now let’s look at what documents are required to conclude a title insurance contract. The list is not very long, it includes:

• photocopies of identity documents of all owners of the purchased apartment (passport, birth certificate for children);
• documents confirming the ownership of this property (the full list must be checked with the insurance company, as it may vary);
• documents that confirm the legal capacity of the person (persons) selling the apartment;
• notarized consent of the spouse to sell this property;
• notarized refusals of neighbors in case of acquiring a share in an apartment or a separate room.

Summing up

In conclusion, I would like to say that title insurance is an effective tool for protecting your property rights in real estate transactions.

However, it can hardly be called universal, since there are situations in which title insurance will not cover your losses. In addition, standard contracts often contain points that allow insurers not to pay you the compensation you deserve. You must remember this when concluding a contract and carefully study those points that contain a list of situations, the occurrence of which gives you the right to receive insurance. If in doubt, before concluding such an agreement, consult a lawyer.

In our country, the institution of title insurance is not yet well developed. As a rule, it is used exclusively for mortgage lending. Nevertheless, in recent years, insurance companies have been actively offering their clients a similar service..

I would like to hope that this segment of insurance services will develop. At the moment, this is perhaps the most affordable and effective tool for protecting ownership of real estate, which is used all over the world and has proven itself well..