Insurance and Specific Risk policies on foreign properties

Unless you have bought property in the USA you may not have heard of Title Insurance. Title insurance is, in effect, an indemnity insurance policy which protects against financial loss as a result of defects in the title to the property.

It is not a substitute for the legal process of course or for instructing a lawyer but can work hand in hand with your solicitor to provide a full legal package to your overseas property purchase. Title Insurance is commonly used in property transactions in the United States but can also be found in many other countries as well.

Your independent lawyer will, as part of the legal process, carry out searches on your foreign property purchase and will identify any issues that arise from the property. These searches will generally identify who owns the property, whether the property is registered at the relevant land registry, what the registered description of the property is, whether there are any charges or rights of way on it, whether the property was legally constructed and so on. Title insurance will then sit behind this to provide cover for any defects in the title that the lawyer was not able to identify.

Specific Risk insurance is something slightly different and is, as it sounds, insurance targeted at a specific risk. If there is a problem with the property then in most cases this can be resolved. An illegal extension can normally be legalised. A charge on the property can be removed. A property that is still registered in a previous owner’s name can be regularised. It is rare to find an issue that cannot be resolved for some reason.

In the rare situation however where a problem cannot be resolved this can be for one of two reasons. Sometimes there is no solution because one of the parties to the problem is uncooperative. For example, the local town hall may have deemed an extension to a property as being illegal and may be insisting that it is demolished. Or, there may be a right of way over the property that is active and cannot be removed. Or, somebody may have a charge on the property and may be refusing to remove it.

In these examples the situation is known at the outset and it is also known that there may be no solution. In those cases potential purchasers have to make the decision to either walk away from the property or buy the property with those issues.

In other cases it is impossible to resolve a legal issue due to uncertainty of some sort. In such cases Specific Risk insurance can come in handy to remove the risk associated with that uncertainty. Some recent cases that we have dealt with help explain how Specific Risk Insurance can help;

Example 1

A client of ours was purchasing a property in Spain. We identified there was a Right of Way over the property that was registered at the Land Registry. The seller was unaware of the Right of Way and indicated that nobody had used it since he had built the house. The seller’s lawyer could not identify where the Right of Way went and the Land Registry could not tell us how this worked; only that there was a Right of Way registered at the Land Registry.

Without knowing how the Right of Way worked or who had the benefit of the Right of Way it was impossible to resolve the issue. Although it appeared the Right of Way was never actually used by anybody, from a legal point of view, we could not guarantee to the client that somebody may not start using the Right of Way in the future. We therefore arranged for the client to take out Specific Risk Insurance to cover this risk that the Right of Way may become an issue in the future.

Example 2

A client of ours owned a leasehold property but the freeholder could not be found and appeared to have disappeared. Strangely, the property below had a different freeholder registered and they could not be found either. The consent of the freeholder was required in order to sell the property but because there was confusion over who the real freeholder was and neither freeholder could be found this caused an issue with sale. An insurance policy was therefore put into place to provide indemnity should there turn out to be an issue with the title in the future.

If you are buying a property abroad it is always recommended to use an independent and experienced lawyer. If you wish to talk to a specialist overseas property solicitor about your potential purchase you can contact a member of our legal team. 

Disclaimer – International legal issues are a complex area of law and this information is no substitute for independent legal advice on an individual basis taking into consideration your personal circumstances and legal requirements. This information is provided to provide general information only and was correct at the time of publishing. The legal position in relation to international transactions can change frequently and this page may not have been updated following any changes in the law. You should therefore not rely on this information and should seek legal advice in relation to your personal circumstances.