LAND REGISTER VS. TITLE INSURANCES

LAND REGISTER VS TITLE INSURANCES

LAND REGISTER VS TITLE INSURANCES

France knows a land register’s system whose main purpose is to resolve disputes in real estate property. It’s a fully preventive system : there is no need of title insurances because the system is fully trustworthy. Specifically, this step can not operate by itself the mutation of ownership law or any other real estate law. However, it ensures the safety of the property market : the reliability of the land registration system ensures a purchaser an indisputable property.

I. FRENCH MODEL AS EXAMPLE. 

By imposing land registration for real estate property deeds, the legislator has two main goals:

  • The safety of any purchaser of a property and, thereby, real estate legal transactions ;
  • The safety of any mortgagee and, thereby, the functioning of the mortgage.

Therefore, to be fully effective and to carry out its role faithfully, the system implemented must cover all legal transactions on buildings : that is to say the transfer of property (for free or not), the mortgages and every other rights affecting the real estate value. We’ll show that it is important, even essential, to publish, as well as real estate transmissions, mortgages and real estate special privileges :

  • An easement or an other servitude which considerably reduces the value of building land;
  • The existence of a dismemberment of ownership such as usufruct, which makes it less interesting for the purchaser acquiring a building so encumbered.

Therefore, land registration has the effect of making the transfer of property or any other right over real estate enforceable against all third parties.

A. Protection Mission.

Protection of the purchaser of a building. The sale of a property has the effect of transferring the ownership of that property from the seller’s heritage to that of the purchaser upon payment of the price agreed between the parties. The safety of the purchaser requires a preliminary information of the rights attached to this property as he must be sure that the seller is the true owner of the property sold. By creating a registration of the successive property transfers, the law allows any interested party and, consequently, the potential buyer, who should be considered in light of all as the owner of the property involved. The buyer has also interest in knowing the existence of mortgages that may encumber the property he intends to buy, and the amount of secured claims. If not aware of that, he may have to pay twice the same price to get the house free of any mortgage. The registration of mortgages will let the buyer know if the property is mortgaged and what is the amount of the secured claims, giving him the opportunity to own a building free of any registration.

Protection of the mortgagee. A mortgagee, that is to say the one who consents to a building owner a loan secured by a mortgage on the building has interest in knowing the location of the property taken as collateral: – First, for the mortgage to be effective, it must have been given by the true owner of the building, that the disclosure of ownership transfers allows us to know; – Secondly, the mortgagee must not ignore the fact that the immovable object of his security may already be mortgaged; he must know the amount of claims secured by existing mortgages, since the effectiveness of its own mortgage is linked to the level at which it will come and the importance of debts already guarantees in relation to the value of the building; Again, advertising mortgages will help to ensure the safety of the mortgagee.

B. Information Mission.

General information of third parties. Land registration was not the sole mission to ensure the protection of interested parties to an act or procedure she also has the function to inform third parties of the legal situation of real property, allowing to adjust, if necessary, objectively, the disputes in the presence of competing interests and conflicts may arise between two real rights on the same building, especially between two buyers of the same building or between an acquirer and a mortgagee. To illustrate the role of land registration in the information of third parties may be mentioned the example of unsecured creditors; they are not protected by the Land Registry; they can not rely on advertising Failing an act detrimental as the sale of a building by their debtor. But the fact remains that they are entitled, as all interested persons to use the system of land registration for information, for example, whether their debtor owns real estate and, if so, whether these buildings are subject to mortgages or whether, instead, being free of any mortgage registration, they are an important part of the credit of the owner.

Revelation of succession mutations. In a number of cases, land registration is not only mission the protection of the interests of the parties. The most significant case is the transfer of property upon death which does not depend on the will of those concerned, especially in the absence of a will; it is obviously impossible to ignore a succession transmission and consider that it is unenforceable against third parties. The Land Registry will then play under certain conditions, an information role; its failure may result in payment of damages, if it has caused harm to an individual. It is the same for declarative acts such as shares that only reveal a pre-existing situation.

Accordingly, any act taking the transfer of ownership of real property, by nature or destination must be issued under penalty of unenforceability against third parties. Civil law notaries, who have a monopoly in real estate matters are key actors, and ensure the safety of the property market.

 II. THE BLOCKCHAIN IMPACT

Blockchain could revolutionize the legal practice of real estate:

  • Civil law countries do not know title insurances because the land registration system ensures the security of real estate buyers. They don’t need title insurances at all.
  • Common law countries have, in the absence of a land registry, title insurances that guarantee the purchaser against liabilities that would be revealed after the purchase

A. The end of title insurances.

Common law countries do not know the land registry, and in return have title insurances. This are injury/damage insurances that guarantee the ownership titles on a given date.

Insurance coverage protects against anything that may vitiate the ownership/property title, which was present or latent prior to the insurance policy’s date and that causes damage to the insured after the date of the insurance policy. The title insurance confirms that on the date of the policy, the title of the property is guaranteed. As this is a damage insurance, the insured only need to show its damage without having to prove the fault of anyone.

Title insurances protects buildings buyers and mortgage lenders. The amount of the coverage for the buyer is the price of the property and the mortgage lender is covered for the full amount of his mortgage.

However, these assurances are unknown in civil law countries, since they don’t need it : the land registration system itself guarantees the legal security of the real estate buyer and the mortgagee.

The blockchain will allow the establishment of a fully decentralized land registry that combines the skills of blockchain’s specialists but also lawyers. However, difficulties in establishing a land registration system entirely based on the blockchain are many.

B. Towards a land registry based on the Blockchain ? 

First, the common law system and the civil law system will have to allow the use of new information technologies as evidences. In addition, French law provides in Article 2200 of the Civil Code that “a written computer document can serve as a record; in this case, it must be identified, numbered and dated in a way that offers all guarantees in terms of evidence “. No doubt the Blockchain could fulfill this function. It seems that this is also the subject of startups such as Ubitquity (USA) or ChromaWay (Sweden).

Then, it would be a priority to make sure of/that :

  • The date of the act ;
  • The quality of the editor ;
  • The legal classification of the act is completed ;
  • Civil status of the parties in the act ;
  • The adresses of the parties and other interveners ;
  • The full description of the property ;
  • The registration references of the former property title ;
  • The registration references of the descriptive schedule of division and its possible amendments ;
  • If the act involves several buildings and that their former ownership results from separate titles, each registration reference must mention the building concerned by this saying;
  • Charges and conditions ;
  • The date of the transfer of ownership ;
  • The date of entry into possession ;
  • The price and terms of payment ;
  • The statements necessary for liquidation, tax base, tax control, rights and wages ;
  • Mortgage inscriptions ;
  • Easements ;
  • The conservation of the act ;
  • The delivery of the act copies.

To ensure the integrity and effectiveness of the system, the act’s editors must all have the obligation to publish any act relating to real estate. The blockchain must therefore be accompanied by an important legislative measure. Moreover, the failure/inobservation on any of these informations above should result in the refusal to publish/register the act if the failure is critical, or in the rejection (the registration is accepted but the act must be regularized quickly, or else it twill cause a retroactive refusal of registration as example).

Title insurers are likely to experience hard times… 

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