Goodbye gazumping, hello title insurance

Richard Phillips on a scheme imported from the US which could spell an end to one of the most depressing aspects of housebuying
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The Independent Online
Gazumping remains in the headlines, but some American insurance companies are hoping to break into the market with a policy they claim can ease all the heartache.

Their proposal, they say, could revolutionise the conveyancing process in the UK. House sales and purchases could be reduced to just a few days; conveyancing costs could be halved, and a firm commitment could be entered into the day a sale is agreed, thereby ending any possibility of gazumping, or its nefarious cousin, gazundering.

The route to this promised land is through something called title insurance. As an American concept, title insurance was developed in the US to guarantee that a property owner did actually own the property. It fulfilled a similar function to the National Land Registry here, which offers a state guarantee that a property is really owned by the person listed on the registry.

The policy as such was a means to provide against fraud - either where the owner was defrauded by someone who did not have the right to transfer the property to them, or by the owner himself, if he had falsely claimed to own the property.

So how does this stop gazumping? One of the reasons gazumping is common is because conveyancing is so drawn out. It gives buyers and sellers openings to start new negotiations with other interested parties, if a better offer comes along.

One of the companies looking to introduce title insurance over here is First American Title. It wants to provide an insurance policy to a property buyer which protects the buyer against a variety of outcomes.

So if there is a defective lease, any loss to the buyer, or mortgage company, would be covered. Or if the solicitors involved in the transaction have been negligent, it will cover the buyer or mortgage lender against any loss.

The policy would also streamline the conveyancing process dramatically. For a start, the buyer and seller could have a binding contract within days, rather than the 12 weeks on average it takes for a deal to be processed at present.

The way such schemes operate in Canada, where they seem to have become a major success, also involves making full use of new technology. Instead of the two parties' solicitors being involved in a protracted ritual of question and answer, the whole search involves no more than an on-line search with the National Land Registry to prove that the property is owned by the seller.

A title insurance policy would replace a solicitor's opinion, and solicitors would become the agents of the title insurer. First American Title claims that title insurance is also cheaper, because it replaces expensive searches and solicitors' inquiries. The cost of obtaining a remortgage - which traditionally takes about 10 weeks to obtain - is halved, it says.

Dr Julian Farrand, the Pensions Ombudsman, and formerly the Insurance Ombudsman, believes that title insurance can have a viable future in this country. "Conveyancing has been criticised by the public and consumer organisations for years, mainly because of high costs and delays. There has been a reluctance by the legal profession to simplify the process, but I believe title insurance facilitates the way forward for conveyancing," he says.

Dr Farrand also wants to see title insurance provide buildings insurance for the first year.

While title insurance may have taken a large slice of the market in Canada, it remains to be seen if it will catch on over here. At present, First American Title has one pilot scheme on the go with a building society. Having started in February, it is due to finish at the end of June. David Thorpe, First American Title's managing director in the UK says the scheme has so far been a great success. But some people wonder if it will work in practice.

Another problem that faces buyers and sellers in England and Wales is chains. Even if the conveyancing was reduced to a few days, there is still the likelihood that a chain would create a lengthy delay.

In Scotland,the situation is different. Gazumping and gazundering are unknown, because buyer and seller are committed to a firm contract at the outset. The only problem is that if you are in a chain, you may have to find yourself temporary accommodation while you finish the purchase of a new home.

Leaseholders in England and Wales, and especially London, also face more problems than freeholders. Up to 70 per cent of leases for flats are riddled with inaccuracies, or misleading information. While these frequently pass through the conveyancing process unremarked, problems can arise for the new owner.

However, Mr Thorpe, says that title insurance will cover badly drafted deeds and leaseholds, where the new owner suffers loss.

The company expects to see title insurance grab a growing slice of the market over the next few years. It may be the answer to a consumer's dream, especially if it removes the utterly shambolic, costly and ineffective process the public currently has to put up with - chiefly the creation of lawyers anxious to line their own pockets.

Bidding in Scotland, Home Truths, page 13