Tuesday, July 1, 2008

Real Estate in Jamaica - Title Insurance Part 2

A forum was held recently by the Realtors Association of Jamaica addressing the Impact of Title Insurance on Real Estate practices and Land Management during which several stakeholders in the real estate industry including the Minister of Water and Housing met to inform and hear about recent developments.

The CEO of Caribbean Title Limited highlighted some areas where the real estate industry failed in its potential to maximize its contribution to Jamaica's economic growth. They are among others:
  1. Slow Processes - this can be seen in the lengthy delays in completing a real estate transactions especially in the areas of stamping documents, processing mortgage loans and registering mortgages and transfers
  2. Informalities - especially in the area of unregistered land where properties are sold by way of cash payment and the issuance of receipt with no transfer of title
  3. High Costs - the transfer tax and stamp duties at 6% and 4.5% on transfers of land for value are still considered high despite the fact that these are reduced amounts. We were informed that Jamaica ranks 157/178 in terms of high real estate transaction costs according to a World Bank Study.
Mr. Chris Hind of NEM Insurance presented on the nitty gritty of title insurance. Title insurance which is simply insurance against loss in the event that there are defects in titles or challenges to the ownership of title is supposed to provide the following additional benefits :
  1. Shorten processing time for sale transactions - if you have protection against the above identified loss then mortgage institutions should be able to disburse mortgage proceeds quick
  2. Guarantee a common law title - in the case of unregistered land you will recall in an earlier post where I spoke about the accessibility of mortgage financing to the common law title holder with title insurance.
  3. Reduce Costs - this is supposed to lower the costs of mortgage application by imposing one fee instead of several components.
In relation to costs those seeking to promote title insurance will need to do some serious marketing as there are some serious doubters out there. Here are the figures.

















Now while I can understand the developers or owners of expensive properties being able to afford title insurance as a buffer against high interest rates accruing during the period that their title takes to be perfected, I do not believe the typical owner of unregistered land in rural Jamaica will find a $50,000 processing fee plus a one time premium attractive. This is not an easy sell.

To soften the blow, the NEM rep assumes that the applicant will be seeking mortgage financing and advises that this $50,000.00 processing fee will become the entire charge for processing the mortgage loan (which of course includes title insurance) and that this is substantially lower than the usual costs associated with mortgage financing. It is interesting to note that to date only one mortgage institution - Jamaican National Building Society - has taken the step in the march toward title insurance, and so this "benefit" would only be accorded to those who borrow from JNBS. Of note too is that the fee for the owner's and lender's policy is the same taken singly and simultaneously. I suspect it is the buyer who pays for the lender's coverage.

I noted that few attorneys attended the forum. They would do well to bear in mind that the proposed lowering of the mortgage costs which is touted as an advantage when purchasing title insurance has been made possible through the removal of the attorney's fees usually involved in preparing the mortgages. On the other hand perhaps it is this very fact which influenced their lack of support of a movement which has been in force in several countries for some time and which has been creeping into others. Is it a just a matter of time before other financial institutions sign on? More importantly will the acquisition of this type of insurance become mandatory in the future?

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