- Title insurance legislation
- When does title insurance work?
- Example of received title insurance
- Price and term of insurance
- Basic advice when concluding a contract
- When title insurance is useless
- Title insurance statistics
- All pros and cons of title insurance
Title insurance legislation
A title insurance contract allows the home owner to compensate for his losses in the event of loss of ownership. Unlike European countries, Russia does not have any special title insurance legislation. Nevertheless, this type of insurance is sometimes used in the Russian Federation. The need for it arises due to the imperfection of the legislation, which does not protect the owner of the home from cases of its return to the original owner.
The only exception that the legislation provides is the possibility of Russians receiving compensation for lost housing if a court decision was made in their favor, but it was not possible to execute it within a year.
An illustrative case occurred in the Chelyabinsk region. The woman bought a room in a communal apartment, and then it turned out that her former owner had purchased this property from a mentally ill person. The court ordered the return of the room to the original owner, and the unlucky customer was to receive the money spent on the purchase of the room. But it turned out to be impossible to collect them from the person who registered the apartment in ownership, therefore, a year after the court’s decision was made, the woman received the right to compensation from the state. Thus, she managed to get the money she spent on purchasing the room back..
True, the amount of possible compensation is limited to a million rubles – a ridiculous amount for people buying housing in large Russian cities. And the compensation procedure is not clearly regulated, so cases when money is actually paid to people who have lost their homes are very rare.
When does title insurance work?
Russian law provides for only one case when a former home owner can hope for at least some kind of compensation. However, there are many situations where ownership of real estate can be lost. Here are just a few of them that allow you to receive compensation for home loss under title insurance:
- The apartment was bought as a result of an illegal transaction.
- The deal was carried out on fake documents.
- One of the parties declared incompetent.
- The deal violated the rights of third parties.
- Ownership obtained by an unauthorized court decision.
- Serious mistakes were made when registering a transaction.
- The transaction was fraudulent.
Example of received title insurance
After several years of litigation, the seller of the apartment was able to prove that he made the deal, being very drunk and could not adequately assess what was happening. The court decided to return the apartment to him, and to the buyer, who had taken out title insurance before the transaction, the insurance due to him under the contract.
Price and term of insurance
The cost of annual title insurance is quite high. In different insurance companies, it can fluctuate within 0.15% -1% of the insured amount.
The rate depends on the specifics of the transaction and why the client resorts to title insurance.
If the property owner decides to insure the title on his own, the cost of insurance is on average 50% higher than in cases where the bank insists on title insurance. Such discrimination is due to the fact that the bank independently checks mortgage borrowers and their future real estate, which greatly facilitates the work of insurance company employees.
Also, the cost of insurance may increase if information is revealed about the violation or the possibility of violation of the rights of third parties to the apartment during any of the sales (the transaction was carried out without the permission of the seller’s spouse, the interests of minor children registered in the apartment were violated, the term of imprisonment of a person ends, who can qualify for housing – the list of such cases is very long).
Most often, the title is insured for the following periods:
- One year – most often the purchase of an apartment is disputed in the first year after the transaction.
- Three years – during this period, according to general rules, it is possible to challenge the validity of transactions for the purchase and sale of housing.
- Ten years – nand this period may be extended by the statute of limitations on disputes on recognizing the sale of housing as invalid.
However, even ten years of insurance is not the limit. The limitation period is counted from the moment when the person demanding to recognize the transaction for the sale of real estate as invalid learned about its completion. Therefore, in theory, a claim can be filed several decades after the purchase of an apartment or house..
Basic advice when concluding a contract
1. Many banks require insurance only for the amount owed to the bank. But since the mortgage borrower already agrees to pay significant amounts annually under the title insurance contract, it is worth taking out insurance for the full value of the property.
2. Make sure that the contract provides for insurance of the entire “history” of the property, and not just its last sale.
3. You should find out if the insurance company provides an installment plan in the payment of insurance. For people who have spent all their savings on the purchase of real estate, this is a very relevant condition.
When title insurance is useless
There are a number of common clauses that title insurance contracts contain. In these cases, the client will not be able to obtain insurance:
- The property is transferred to third parties under a gift agreement or under any remunerated contract.
- Insured apartment destroyed.
- Homeowner relinquished ownership.
- The insured home is misused.
- The design features of housing have been changed (engineering systems were transferred, redevelopment was carried out, which entailed changes in the registration certificate of real estate, etc.).
- Insured property seized by government authorities.
However, insurance companies often refuse to pay insurance to customers, not only because of such clauses, but also for completely far-fetched reasons..
A striking example is the story of the apartment of the Chalaev family, who bought real estate on a mortgage and, at the request of the bank, issued title insurance. The deal was carried out by a realtor whom the bank recommended. Soon after the deal was concluded, extremely sad facts emerged..
It turned out that the stepbrothers of the woman who was the original owner of the apartment also apply for housing. They tried to inherit the apartment, but they were denied entry into the rights.
The brothers challenged this decision, and while they were proving their right to housing, they managed to sell the apartment five times. The last buyers were the Chalaevs, and six months after they bought the apartment, the court still seized the property at the suit of the brothers.
As a result, the Chalaevs were found to be unscrupulous buyers, since, according to the court, they had to talk to neighbors and collect more information about the apartment. And the insurance company refused the Chalaevs to pay compensation for title insurance.
Title insurance statistics
At the moment, title insurance is not widely spread on the territory of the Russian Federation. Most often, such agreements are concluded by mortgage borrowers at the request of banks. According to experts in this field, banks require title insurance only in cases where secondary real estate is purchased on a mortgage, and not apartments in new buildings. They believe that the risk of losing an apartment in a new building is small, since it does not have a long history of changing owners. Therefore, title insurance services are often used only by mortgage borrowers who buy apartments on the secondary market..
According to statistics, in 2014, eight hundred thousand loans were issued for the purchase of housing. According to the largest banks, only a third of these borrowers took out loans for the purchase of secondary housing..
People who buy housing for their own money, according to experts from insurance companies, use title insurance very rarely. The annual number of such cases is only a few tens or hundreds..
All pros and cons of title insurance
The main advantage of title insurance is obvious – it allows you to receive compensation in case of home loss.
But at the same time, the owner of the property will have to pay considerable sums to the insurance company annually. In addition, in theory, any real estate transaction in Russia can be included in the list of situations in which insurance will not be paid. Therefore, it is very likely that the real estate owner will not only lose the apartment, but also spend tens of thousands of rubles on title insurance in vain..
And insurance companies, before concluding a contract with a client, conduct a real estate check and, if they find doubtful facts that may lead to the loss of housing, refuse to take out insurance. That is, in fact, the client will pay insurance premiums for the apartment, which most likely does not need title insurance at all.
Therefore, title insurance should be considered as an additional precaution, but not as a panacea for the loss of an apartment..