Title Insurance in Paradise... Necessary
or Not?
Title insurance has been a part of purchasing
property in many markets for a considerable time, beginning
in the United States about 100 years ago. Many other markets
- Canada, Great Britain, and some European countries are now
seeing the use of title insurance steadily rise.
 As a result,
non-domestic purchasers of Bahamian property
may expect
that
coverage of this type
is a common
practise
in this
country
as well.
Historically,
title insurance in the Bahamas has not been
a standard element of purchases, and
insurance product providers reveal that there are no plans
for their organizations to offer it.
William Mills of J.S. Johnson, a leader
in the Bahamas insurance industry, maintains that in Bahamian
property
transactions,
a
purchaser's
actual
financial
exposure
is very
low. The domestic market for title insurance is all but nonexistent,
he claims.
A good part of the reason for this may well
be simply that for
the
most
part,
legal
fees
assessed
by
your
lawyer
are contingent
on
the act
of
closing. It is to the lawyer's best interest to identify
and correct any flaws or issues at a very early stage
in the transaction.
Meanwhile, on purchases by a foreign buyer
who may be conditioned to its presence, or who has a lender
with an expectation that title insurance forms part of their
agreement
to finance, usage of title insurance supplied
by American insurance organizations continues to slowly increase.
But
first, what exactly is title insurance, and should you get
it,
or more importantly, do you need it?
Some Background
The use of title insurance is not necessarily
tied to an increase in problems with titles. Evidence actually
suggests that the incidence of title problems relative to
the amount
of property transactions is actually declining. The increase
in use seems to be more directly associated with an increase
in desire to reduce risk, however small.
The word "title" refers to the legal expression for property
ownership. Two of the
most desirable attributes of a title are that it be "good
and marketable". "Good" means that the title
is suited to the buyer's
purpose as represented, and "marketable"
clarifies that
the title is able to be conveyed by the buyer to someone
else should they wish.
Within these two attributes defining title
are where potential difficulties for the buyer may lay in
wait.
To make a title "good",
it must be free of all charges and encumbrances that may hamper
a
new owner from obtaining a free and clear ownership, and of
course, full enjoyment.
Before the sale can take place, public
records are
searched
for information
about
the
previous
owners.
In
the Bahamas, many times the title is searched all the way
back to the original grant of land by the crown. In addition,
records
are searched for existing mortgages, property taxes and outstanding
utilities. Absolute ownership, otherwise called "clear
title",
and all outstanding issues must be discharged before
closing.
The title must be "marketable".
Occasionally, problems (called "defects" in legal wording)
regarding title are not discovered
or are not
remedied
before closing. These may be things such as a building built
without a permit, a boundary error, or a new discovery regarding
the lineage of previous ownership. This may result in additional
expense to the buyer after-the-fact.
It is to protect against the risks of
such defects developing that title insurance has been gaining
popularity.
The ins and outs of title insurance
Title insurance policies are for the protection
of the purchaser's side of the deal, and consequently, can
be issued in favor of the purchaser, his lender, or both. In
some cases, the lender may actually require or favor title
insurance.
With title insurance, the buyer can set his
mind at rest regarding problems such as errors in survey, zoning,
right-of-way and setback issues, fraud, unregistered easements,
and the like. Policies generally do not cover native land claims
or environmental risks. The extent of coverage should be a
point of review for you and your lawyer to ensure that you
understand what risks are covered and which are not.
Policies
will indemnify for actual loss against damage sustained up
to the policy amount, a factor of what premium you pay.
You may be able to get inflation coverage as well, probably
to
a maximum
pre-established amount.
For
policies covering the purchaser, title insurance stays in
place during the period that the purchaser has title. Sometimes
a policy will be transferable to heirs or family members.
For lenders, the term of the title insurance ends when the
mortgage ends
against the title, and is typically
for the principal amount of the mortgage.
In either case,
the premium for title insurance is paid once at the time
of purchase.
Insurance is Peace of Mind... if you feel
you need it
The main benefit of title insurance
is that it can speed up a closing by shifting the responsibility
to the insurer for any unseen or undiscovered defect in title.
However, only you and your lawyer can decide
whether the particular conditions in your purchase actually
warrant the need for this protection. You will not be required
to take out title insurance by a Bahamian lender, another
good reason to look at alternatives that may exist for financing
right in the Bahamas.
Remember, as with any advice, only you can
decide. Always rely on your legal professional to give you guidance
and to offer new information as it is updated.
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