Protection from deception needed
14/07/2007 NST By Zoe Phoon

An insurance to protect homebuyers, one that gives the reassurance that their legal interest in a property is safeguarded for as long as they, or their heirs, own it. This is what "title insurance" is all about.

Would you, as a buyer, or even owner of a plot of land, take out such insurance if it is made available? Title insurance is available in some parts of the Western world, and it should be made mandatory in Malaysia as well, said a lawyer.

Derek Fernandez, who is legal adviser to 42 residents' associations in the Klang Valley, called for it to be made compulsory pending the implementation of a system that can stop, limit or reduce fraudulent real estate transactions.

The present system in land offices, he said, has inherent weaknesses that can be exploited by people with the knowledge to defraud property owners. Identity theft is one of the main causes, and this arises from the use of fraudulent or forged documents.

"Title insurance should be made available in Malaysia, as it will help to compensate for loss suffered by innocent parties as a result of fraud by a third party who has absconded, cannot be traced and is not criminally prosecuted," Fernandez said.

As for the premium, he suggested imposing a small fee on each Land Office transaction, to be borne equally by the purchaser and vendor. The government could then use this money to purchase the necessary insurance coverage.

The premium would not be high, he added, because the volume of land transactions in the country is high. In addition, lawyers have their own insurance to cover their negligence.

"There may also be a need to make it mandatory for lawyers to cover their own fraud, whether fraud by a sole proprietorship or by any of the partners in a firm," he said.

"Much of the real estate fraud does not involve lawyers but third parties such as people in the real estate industry with special links to land offices.

"Of the 12,000 lawyers in Malaysia, the incidence of those swindling or misusing clients' money in any one year is very, very small.

"Of course, there will be the risk of fraudulent claims against insurers. Insurance companies should equip themselves to investigate fraudulent claims, just as they do in the motor industry."

To avoid risks, Fernandez said buyers and sellers should have their own lawyers, who themselves should have adequate insurance.

People, he added, should also be very careful about buying unoccupied land. They have to be certain about the party selling the land, must insist on original documents and use competent real estate agents or lawyers to finalise the deal.

Federation of Malaysian Consumer Associations (Fomca) president Datuk N. Marimuthu said it would be a good move to introduce title insurance as it protects house buyers from the ever-present risks in any real estate transaction.

However, he hopes insurers will not overcharge on premiums.

His advice to house buyers: "Pay a small premium and get protected, so you won't get sleepless nights."

For the present, however, title insurance is not a product that is underwritten by Malaysian insurers.

Title insurance is a specialised class of business, the General Insurance Association of Malaysia (PIAM) said.

Even in countries where it is offered, a PIAM spokesman said, specialist insurers underwrite it. The procedure involves the specialist insurer employing qualified people to research and verify filings for land and property titles before it agrees to issue a policy.

"We understand that the need for title insurance arose in the United States and Canada because they use a system of filing land and property titles that does not determine the legal ownership.

"In Malaysia, legal ownership of land and property is registered by and with the authorities," the spokesman added.