Hong Kong's land title system has fundamental flaws to the extent that the Law Society has stated, "instances of properties with absolute good title are rare if not unknown".

The Government is seeking to improve this situation with the introduction of the Land Titles Ordinance (anticipated to be implemented in 2007). However, the Ordinance offers limited protection to lenders¹. Of greater concern, the phased implementation over a period of 12 years will cause a two-tier marketplace to develop in Hong Kong; one market for registered titles and another for unregistered titles. This will undermine the value & marketability of distressed properties with unregistered title; particularly in market downturns when buyers use title defects to exit from acquisitions or negotiate prices down.

Title is a risk management issue. Typical Title problems include:

Essentially, title insurance protects owners and lenders against any claims against the title, and guarantees that the mortgage is valid, enforceable and of first priority. The coverage includes financial losses and legal fees to defend or perfect title. For mortgagees, if a claim cannot be settled within 180 days, the insurer will pay the monthly principal and interest on the loan until settlement.

Using First American's title insurance due diligence process, we are able to incorporate our risk management tools into lenders' standard mortgage processes and solicitors' instructions. Title insuring mortgages not only manages and mitigates title-related risk, it adds value to any subsequent securitizations of mortgage portfolios and negates the requirements for residual warranties.