Protection from deception
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
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
"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
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.