Title insurance of real estate

Before making any expensive purchase, a rational person weighs the pros and cons of the action. The most important expensive acquisitions in every person’s life include the purchase of real estate (apartment, house, cottage). In addition to detailed analysis and processing of large amounts of information, there remains an interest in protecting one’s rights at the legislative level. This allows you to avoid asking questions in the future: how not to fall into the hands of scammers when buying an apartment?, how to protect your rights in the event of controversial situations?, how to understand that the apartment you are buying is “clean”?, how to properly draw up documents for the purchased property? To answer these and many other questions, read the rules and features of real estate title insurance.

What is title insurance

Title usually refers to ownership of movable or immovable property, documented and legally proven by the owner. This term gave the name to the type of insurance service under consideration, which is quite logical, given the nature of insurance.

The presence of title insurance guarantees the buyer compensation for damages incurred in the event that the rights to the real estate acquired during a mortgage lending transaction are declared invalid. In this case, the objects of insurance are ownership rights to any type of real estate - both residential (apartment, private house, room, shares in all listed objects), and commercial, economic or industrial (offices, warehouses, garages, bathhouses, etc.) .d.)

Features of title insurance

The main characteristic feature of title insurance is the narrow specialization of this type of insurance. It provides protection for the borrower and lender from one specific risk associated with the loss of ownership rights to the purchased property. Therefore, the contract with the insurance company does not include such insured events as physical destruction of the object, reconstruction or change in its design features and other similar risks. However, in practice, quite often a comprehensive policy is issued that provides title insurance as one of many insurance risks.

Other significant features of title insurance include:

voluntary nature.
Despite the fact that some banks insist on obtaining title insurance, this requirement is not mandatory in accordance with the provisions of No. 102-FZ and the Civil Code;
Frequently used when purchasing commercial real estate with a mortgage. For such transactions, especially when a legal entity acts as the buyer and borrower, title insurance is almost always taken out;
long duration of the insurance contract.
Until recently, the standard policy period was no more than 3 years. However, changes in legislation have led to the possibility of entering into agreements with the borrower for up to 10 years. Title insurance is an accompanying measure in relation to a mortgage, often concluded for 20-30 years, so many clients prefer to take out a policy with a maximum term;
benefits for both parties to the mortgage contract.
Two other types of mortgage insurance - property and health of the borrower - are more beneficial to the banking organization than to its client. In contrast, title insurance effectively protects both the lender and the buyer of the property, which is often the deciding factor in taking out the policy.

An essential feature of title insurance is the presence of five main reasons that serve as the basis for invalidating a transaction to purchase real estate with a mortgage. These include:

forgery and falsification of documents and signatures of parties involved in the purchase and sale of real estate;
violation of the legal rights of owners who are minors or incompetent;
concluding a transaction with an individual or legal entity who is not the legal owner of the object;
violations during the privatization of real estate purchased with a mortgage;
legal violations during the execution and implementation of the transaction.

In what transactions is title insurance invalid?

Title insurance protects against void transactions in the following cases.

The seller was officially declared incompetent at the time of the transaction. The guardian can challenge the purchase and sale agreement. In this case, the buyer will lose ownership rights, even if he has taken out a loan. Title insurance in this case will protect the rights of the buyer.
The property was purchased from one of the spouses, but the other did not give notarized consent. The deal is declared invalid.
The seller signed the purchase and sale agreement under pressure from third parties. The buyer may not know about this, but if the seller goes to court and proves that he was forced to sell the property, the transaction will be declared invalid.
The transaction was carried out in violation of the rights of minor children. The buyer may not know about it, but in this situation the transaction will be considered illegal.

This type of insurance will not protect real estate from confiscation or seizure if the owner ceases to fulfill financial obligations.

Risks of title loss

An insured event covered by title insurance occurs as a result of the actions of a third party whose interests were infringed during the purchase and sale of real estate. As a rule, in such a situation we are talking about a lawsuit of one of two types - vindication or declaring the transaction invalid.

Vindication claim

A vindication claim is understood as the recovery of real estate from illegal use. The possibility of such an appeal to the judicial authorities is provided only to legal owners who are able to prove their own rights to real estate. In fact, consideration of evidence of this becomes the subject of legal proceedings.

In such a situation, practically nothing depends on the borrower. The main thing to obtain insurance is to confirm the status of a bona fide buyer who did not know that the other party to the transaction was not the legal owner. It is also extremely important to prove the paid nature of the purchase and sale, for the implementation of which both borrowed funds from the bank under a mortgage loan and one’s own money were used.

The statutory limitation period for vindication claims is 3 years. Considering this fact, it becomes clear why, when carrying out transactions with property owned for longer than the specified period, title insurance is used much less frequently.

Claim for recognition of a completed real estate transaction as void

The most common reason for filing such a claim is a violation of the legal rights of property owners who are incapacitated or minors. For such transactions, the legislation provides for a special procedure for implementation, which requires mandatory obtaining permission from the guardianship authorities.

Real judicial practice is formed in such a way that the likelihood of a judge’s verdict declaring the transaction void is extremely high. Therefore, taking out title insurance when purchasing a property, the owners of which include the above categories of owners, is a competent and balanced decision. It will ensure the protection of the interests of the mortgage borrower in the event of unfavorable developments. It is important to note that the statute of limitations for this type of claim is also set at 3 years.

Is title insurance required for a mortgage?

No. But it can protect you from losing your apartment. It is no secret that when purchasing a mortgage (and in real estate transactions in general), a significant portion of the buyer’s expenses are made up of various legal checks. In this regard, borrowers naively believe that since the “legal purity” of the apartment has been checked from all sides by both the bank and realtors, then there is nothing to be afraid of. And since there is no risk of losing ownership, then title insurance is not necessary... Alas, borrowers are mistaken.

Not a single bank or real estate agency is able to trace the full history of an apartment on the secondary market and identify all possible contenders for this property. That is why the risk of losing title exists in any transaction.

Why, in this case, do realtors and bank lawyers take money? And for the fact that they establish the authenticity of the documents provided for the transaction, they check the data specified in them - for example, that the privatization was registered in the name of Marya Ivanovna Petrova, and not Ivan Kuzmich Sidorov, that two, and not four, people are registered in the apartment, and so on. But it is simply impossible to find out whether there are professional swindlers among the owners, or whether there are minors among the heirs whose rights have been infringed in some way in the time frame given to prepare a mortgage transaction.

The risk of losing ownership when purchasing real estate on the secondary market always exists. Let's take a closer look at what happens as a result of an insured event.

How much does title cost in mortgage insurance?

When deciding whether to take out title insurance, one of the important arguments for or against is the cost of the policy. The insurance price is determined taking into account several key parameters, including:

duration of the insurance policy;
the approximate cost of the property purchased using a mortgage loan;
functional purpose of real estate (residential, industrial, commercial or economic);
the status of the borrower, which can be both organizations and individuals;
parameters of the mortgage loan agreement concluded with the bank;
predicted level of risk;
the duration of the property's ownership by the seller, etc.

Currently, the standard level of rates for title insurance is in the range of 0.3-1.5%. It is important to note that when calculating the cost of issuing a policy, the specified rate is not multiplied by the market value of the property, but by the size of the mortgage loan.

What to look for when taking out insurance

Title insurance is deservedly considered a legally complex transaction. Therefore, when preparing and signing documents, you should be extremely careful about their content. The optimal solution to eliminate possible problems in the future is to involve qualified lawyers specializing in this type of insurance.

In any case, when applying for a policy, you need to pay close attention to several fundamental points, including:

duration of the contract.
Ranges from 1 to 10 years. In most cases, it is more profitable to make a longer transaction, especially considering the fact that the mortgage is also almost always concluded for a serious period;
distribution of payments by year.
As a rule, larger payments under the insurance contract are provided for in the first years of the policy. This approach is beneficial to insurance companies, therefore it is in the interests of the borrower to distribute payments more evenly across calendar periods;
formula for calculating the insurance amount.
The main requirement is to link the amount of possible compensation in the event of an insured event to the real value of the property;
clear formulation of the insured risk.
One of the most common grounds for refusing to pay compensation is failure to recognize the occurrence of an insured event. Avoiding such a situation is quite simple - you need to clearly define all possible insured events.

Taking into account each of the listed parameters in the process of preparing and signing an agreement on title insurance of a real estate property will make the policy an effective means of protecting the interests of the mortgage borrower when receiving a loan. It is important to note that the relatively low cost of title insurance makes this service extremely attractive for all parties to the transaction - both the borrower and the banking institution. Serious interest in obtaining a title insurance policy leads to the fact that it is almost always possible to select conditions for the transaction that are suitable and beneficial for both parties.

Necessary documents for registration

When applying for title insurance, the mortgage borrower prepares and provides the following set of documents to the insurance company:

from the buyer - a passport (for individuals) or a set of statutory and registration documentation (for organizations);
from the seller - similar documents, as well as documents confirming his legal capacity;
title documents, which are: an extract from the Unified State Register of Real Estate, a will or other documentation on the inheritance of real estate, a certificate of state registration of property rights, an agreement of gift, exchange or sale, etc.;
registration certificate or other documents on the characteristics of real estate;
expert opinion on the market value of the property, obtained during the process of drawing up a mortgage agreement with the bank;
an agreement on the provision of a mortgage loan, as part of the preparation of which title insurance of real estate takes place.

Who has the title of owner? From a legal point of view, this is the owner of the property - the one who is recorded in the documents as the owner and has rights to it. How to avoid the risks of loss of title and what is title insurance? Let's figure it out.

A single lady, a retired military personnel, “very profitably” purchased an apartment in the Moscow region using a military certificate. She took out a consumer loan for 1 million rubles for repairs. As soon as the repairs were completed, an unexpected obstacle arose - an unknown person appeared. At one time, his right to privatize the apartment was not realized, and he did not refuse privatization. This relative was simply “forgotten” when they compiled a certificate about the persons living in the apartment at the time of privatization.

To the woman’s horror, the “relative” proved in court his right to 1/2 share of the apartment. Of course, there is a possibility of a fraudulent scheme in this case, but law enforcement agencies found no evidence. If the buyer had insured the owner's title in advance, the deprivation of ownership of the apartment would have been recognized as an insured event - the insurance company would have paid compensation. Now the new owner of the apartment will most likely have to sell it and move to cheaper housing.

If she had insured the title of the property, such a dramatic development of events could have been avoided: the insurance company would have paid her the full amount of the transaction.

The owner's title can be insured (not only for a specific transaction, but also for all previous ones). This is quite reasonable if there is a risk of losing your rights to newly acquired real estate - for example, in a situation where the transaction has been contested. The deal is disputed for a number of reasons: if they forgot to take into account the rights of children, heirs or those serving a prison sentence; if the transfer of rights (even the previous one) was made erroneously or fraudulently; if one of the parties to the transaction has the status of incompetent.

But first, let's find out what an owner's title is.

Earrings for all sisters

An owner's title is no different from a regular title - it's just a term.

Titles are usually divided into two types:

original, arising anew, it does not depend on the rights of the previous owner to the thing;
derivative, in which the ownership of a thing is transferred from the previous owner.

If you are planning to purchase property, you need to assess the risk of losing ownership in the future - for this, qualified lawyers check all documents. In the case of the original title, not only the object of law itself (movable and immovable property) is studied, but also the transaction for its acquisition: how the title arose, whose interests were affected, etc.

In addition, they pay attention to the details of the transaction itself: whether all norms of the current legislation are observed, whether the form of the transaction is chosen correctly, whether legal permissions have been obtained from all persons whose consent is provided for the transfer of property, etc.

In the case of a derivative title, the verification is even stricter: absolutely all transactions for the acquisition of an object of right are subject to it. If some of the documents are missing, the risk of losing the owner's title increases.

But in both cases there are many points to be checked. After the first check, the expert may request additional documents - this is normal and confirms that the specialist carefully studies the documentation.

The documents provided by Rosreestr contain an extract from the Unified State Register of Real Estate about the transfer of rights to the object. Theoretically, it should contain information about all transactions carried out in relation to a specific property. But in fact, it only reflects transactions made after the creation of the Unified System of State Cadastral Registration of Real Estate (after 2009). In addition, the phrase “no information” is often used, which does not allow actively using this option, admits lawyer Irina Fomenko.

example

The owner sold the privatized apartment for 5 million rubles. After some time, the new owner also decided to sell this apartment. The new buyer has title insurance on the property. Two years later, the first owner appeared, stated that he was an alcoholic, and on this basis began to challenge the deal. A forensic examination was carried out, which proved that at the time of signing the DCP, this person was not aware of his actions. At the same time, he was not registered, and the court did not accept certificates from the drug and psychoneurological dispensaries that the buyer had in his hands as evidence. The deal was disputed. The insurance company paid 5 million rubles based on Article 177 of the Civil Code of the Russian Federation.

Title rights and obligations

The scope of rights and obligations of the title (official) and legal (real) owners may differ slightly. The title owner is the person in whose name the title documents for the property are written. But there is a certain category of legal owners who are not indicated in the property documents.

“A striking example is spouses. They have equal rights to real estate, but information about the second legal owner is not included in the Unified State Register of Real Estate,” explains Irina Fomenko.

The expert listed the advantages and disadvantages of being a non-title owner.

advantages and disadvantages

+ The property is not indicated in the personal declaration.

+ If you have certain benefits, you can get on the waiting list for housing.

+ An owner without a title does not pay property tax and tax on the sale of the apartment.

— There is no direct right to dispose of your property: any real estate transaction is formalized by the title owner. If for some reason the title owner does not re-register the apartment, then the legal owner will recognize his right to the property in court and register it with Rosreestr. Only after this, having become the title owner, will he be able to conduct a transaction with his real estate.

— There is no full right to dispose of the apartment: it will be possible to register relatives only upon the application of the title owner.

In addition, Irina Fomenko explains the security transfer of title - the transfer of ownership of the debtor's property to the creditor upon concluding a loan agreement.

“If the debtor fulfills the obligation on time, the creditor is obliged to return ownership of the thing. In case of default, the creditor can keep the property or sell it at market value. In this case, the interests of the creditor are maximally protected. The debtor immediately loses his property rights and, even with a slight delay in repaying the debt, risks losing the property irrevocably,” the lawyer emphasizes.

Owner's title insurance

It is possible to insure your title not only in relation to a house and apartment, but also in relation to an apartment in a building that has not yet been built (an unscrupulous developer will not have a chance to sell it to other buyers), a plot of land and even non-residential premises.

Experts note that insurance is especially necessary when inheriting real estate, in transactions in which maternal capital is used, in transactions with individuals with signs of bankruptcy, with certain categories of sellers registered in a psychoneurological dispensary (it is better not to get involved with a diagnosis of schizophrenia, but cerebral palsy is not an obstacle to a deal, although a person with such a diagnosis is also registered, but it’s still better to be on the safe side) and a drug dispensary (not all “legalized” alcoholics are not eligible for a deal).

example

The owner was selling several plots of land in the Ruza district of the Moscow region, having previously divided one large plot. After the transaction, the district prosecutor began to challenge it, stating that the seller was a fraudster - he alienated several buyers at once, forged documents for a large plot of land, and subsequently officially registered the division through Rosreestr. As a result, the prosecutor deprived all new owners of their property rights. One of the buyers obtained title insurance in advance and received a claim.

How it works?

Tsian.Zhurnal, with the help of an expert in the field of title insurance Olesya Bukhtoyarova, a representative of the insurance company, collected the most common questions and answers to them.

When will there be no insurance payments?

There are a few exceptions to the rule. Let’s say that the policyholder has alienated the property, transferring it into the ownership of another person, but at the same time claims insurance compensation. Another option in which payment will be denied: if at the time of alienation of the property the insured owner acted in a state of intoxication.

Third option: when drawing up the contract, the policyholder knew that there were certain problems with the object, but did not notify the insurance company about this risk (the insurance company will have to prove the owner’s awareness - this is a delicate point).

All payments are made by court decision (however, in Russia all deprivations of property must be carried out only by court decision).

How much does title insurance cost?

On average in the market, the tariff for an annual voluntary title insurance policy (we are not talking about compulsory mortgage insurance!) costs about 0.3–0.4% of the appraised value of the property. For three years, the cost of insurance will cost 0.75–1% of the price of the property. The more complex the history of the property, the higher the tariff.

three ways to determine the value of the insured property

The price indicated in the purchase and sale agreement (if the apartment was bought for 9 million rubles, the insurance company will issue a policy for exactly that amount).
Incomplete cost. If the contract specifies an incomplete cost (including in an illegal attempt to save on taxes or in transactions with a potential bankrupt - for example, if he has not paid more than 500 thousand rubles on his loans and/or has not paid them for three months, which is a pre-bankruptcy state), risks arise for the buyer. If the transaction is contested and declared invalid, the buyer will only claim the amount specified in the contract. Transactions at incomplete value have the right to be challenged by third parties, the sellers themselves, creditors and/or the financial manager. If the market value of the object is 12 million rubles, and the contract specifies only 10 million rubles, the insurance company may require an additional agreement and a receipt for the difference to confirm the full transfer of funds from the seller to the buyer - if an insured event occurs, the full amount will be paid (12 million rubles).
One of the options for determining the insured amount is to conduct an independent assessment of the property, then the insurance company will rely on it.

The insurance amount is paid, which the company fixed in the insurance contract. It is determined according to the parameters listed above and must be specified in the contract.

What guarantees does title insurance provide?

In Russia, there is a negative system for registering rights to real estate, according to which all responsibility for the transaction is placed on the final buyer, who must prove in court his good faith (and this is an assessment category), caution and diligence during the transaction. The state is responsible only for the transfer of title, but not for its content, hence the need for title insurance. It is the only reliable protection in Russia - that is why banks include title in mortgage insurance.

What are the main risks covered by title insurance?

The risk of encountering fraud - for example, forgery of ownership documents (common, difficult to recognize).
Violations in the use of maternity capital, when children are not given shares and real estate is alienated. Later, the guardianship board and/or the adult children file lawsuits.
Bankruptcy of individuals, in which the seller declares himself bankrupt after the transaction. For the buyer, this is fraught with the fact that the transaction will be contested (especially when making payments through a safe deposit box and when an incomplete transaction value is indicated in the DCT).
If a person with a mental illness is involved in the transaction (and this becomes clear after signing the PrEP).

For how long does it make sense to take out title insurance?

It’s definitely not needed for life. According to Article 181 of the Civil Code of the Russian Federation “Limitation periods for invalid transactions”, the limitation period for claims to apply the consequences of the invalidity of a void transaction and to recognize such a transaction as invalid (clause 3 of Article 166) is three years, and for voidable transactions - one year. In some cases, the limitation period is 10 years, but this is rare. As a rule, insurance companies insure for one or three years - there is no point in doing more. The practice of insurers confirms that all risks arise in the first three years after the conclusion of a transaction.

In what amount and after what procedures is insurance paid if ownership is still disputed?

If the policyholder receives a claim from the seller or from third parties, he contacts the insurance company, which joins the process (acting as a participant in the process as a third party). If an insured event occurs (the court canceled the USRN record of the property), then the insurance company pays the amount that was recorded in the insurance policy. Sometimes this takes quite a long time (let’s say, a year and a half), since trials in Russia last a long time. Sometimes the insurance company insists that the policyholder go to the appellate court, trying to protect not only the rights of its client, but also the company’s money (the case, as a rule, does not reach cassation).

Will it be possible to insure the land plot?

There are few such requests. Insurance companies do not consider all areas, but land for individual housing construction and agricultural land are usually taken. At the same time, they study who allocated the land plot and when, demand that the full cost be indicated in the DCP, use a non-cash form of payment, etc.

Is it possible to take out a policy as an owner?

No, you can’t (although this option was previously allowed, but now insurers have abandoned it due to the increase in the number of fraudulent schemes). Now the object is insured either on the day of signing the contract, or two weeks later - after receiving an extract from the Unified State Register of Real Estate on the registration of the rights of the new owner. In this case, the application should be submitted in advance - before signing the policy, so that the insurance company has time to assess the risk.

FAQ

What cases are included in title insurance?

Title insurance provides protection against invalidation of a real estate purchase transaction with a mortgage. Such a decision is made by the judicial authorities and may be caused by the following reasons:

falsification of documents drawn up during the transaction and the signatures of the parties involved in it;
violation of the rights of owners, who are persons who are minors or incompetent;
making transactions with a person who is not the legal owner;
violations committed during the privatization of the object;
violations in the process of registration and completion of a purchase and sale transaction.

Can I give up title on a mortgage?

From the point of view of domestic legislation, title insurance is voluntary. At the same time, banking organizations have the right to independently determine the conditions for providing mortgage lending services.

As a result, the client has every right to refuse the title. Typically, in such a situation, the bank either refuses to issue a mortgage or significantly increases the interest rate. Therefore, in most cases it is advisable to agree to the terms of the financial organization. Moreover, title insurance is extremely beneficial for the borrower himself, protecting him from very unpleasant financially and at the same time very real consequences.

When might a policy fail?

Insurance companies often refuse to pay compensation when an insured event occurs. The basis for such a decision in most cases is:

failure by the mortgage borrower to fulfill the obligations stipulated by the agreement concluded with the insurance company. Most often, we are talking about late payment or complete non-payment of insurance premiums;
force majeure circumstances specified in the contract, for example, loss of title during hostilities or as a result of confiscation of real estate by the state;
use of the insured property for other purposes or in violation of operating conditions;
sale, exchange or donation of pledged property to third parties and other similar actions of the policyholder.

When do insurance companies refuse to pay?

Insurers refuse compensation for damage in the following cases.

The borrower misses mortgage payments and defaults on loan obligations.
The title became invalid as a result of the confiscation of the property.
The owner uses the insured property for other purposes or violates the rules of operation. For example, he mortgaged a property or issued a deed of gift without notifying the insurance company.