•   2. The Specifics

    a. Who can use title insurance?

    • Investors, developers, law firms, and corporate end-users.
    • Real estate funds and banks operating across borders.
    • Property sellers.
    • Distressed mortgage debt and real estate equity investors.
    • Issuers of commercial or residential mortgage-backed securities (CMBS/RMBS).

    b. How does title insurance work?

    In the event of a third-party claim challenging the owner’s title or lender’s mortgage, the insurer is responsible for defending against the claim at its expense:

    • If this litigation proves unfavourable, the policyholder is indemnified for his loss, up to a maximum of the amount of the insurance.
    • The premium is paid only once, at closing, and the policy remains valid for the entire duration of ownership, without additional cost or yearly premiums.
    • If the property is bought and sold, a new policy would be required.

    c. Why buy title insurance in addition to a legal opinion?

    Lawyers provide an opinion—title insurance provides an indemnity.

    A legal opinion, especially in a large commercial transaction, is fundamentally a disclosure document: Counsel carefully defines the state of title and related issues, identifies areas of uncertainty or defect, and carves out exceptions (e.g., fraud), thus putting the investor or lender in the position of having to “take a view” on such risks.

    d. Does title insurance change the role of lawyers and notaries?

    Their role remains unchanged. Policies will be underwritten based on the property title due diligence and legal opinions provided by lawyers or notaries in each country.

    Title insurance can, in fact, be valuable for legal professionals since it:

    • Allows deals to move forward that might otherwise be considered too risky.
    • Effectively transfers risk from lawyers and notaries to the title insurance company, thus making it responsible for defending against title and mortgage claims.

    e. Does title insurance also cover indirect property investments, e.g., acquisitions of real estate companies or investments in Limited Partnerships?

    Yes. Here the role of title insurance may be even more critical, since acquisitions of shares in real estate companies, or interests in Limited Partnerships, are usually not subject to a contract by a notary or a new entry in a land registry. Therefore, new shareholders, or Limited Partners and their lenders, may not be fully protected by older documents.

    It is always possible, and relatively easy, to obtain an update of a title policy that provides full coverage as of the date of the new transaction.

    f. Can title insurance also be useful to property sellers?

    Sale and purchase agreements typically include representations and warranties by the seller relating to a number of issues, including title. Sellers can replace these with title insurance and thereby eliminate contingent liabilities affecting their balance sheet, the need for cash collateral and post-closing challenges.

    g. What are the costs?

    Premiums can vary from 0.2% to 2% of the value of the transaction, depending on the size, complexity and risk of the deal.

    This premium is paid only once, at closing, and the policy remains valid for the entire duration of ownership, without additional cost or yearly premiums. For a development project, premium payments can be made in stages as the value of the project increases.

    f. How can title insurance facilitate the sale of distressed mortgage debt and property?

    Occasionally, a bank or distressed borrower is unable to rely on previous due diligence, or even provide solid representations and warranties because of insolvency risks. Title insurance can provide a financial guarantee of title, which is critical to both the distressed seller and investor. Such a guarantee can speed the transaction, while reducing risk