Wednesday, July 6, 2011

Real Estate Title Insurance

As Oman uses real estate registration systems for the transfer of land titles or interests in them, the Real Estate Register at the Ministry of Housing makes the determination of title ownership and encumbrances on the title based on the registration of various instruments affecting the title.

This article provides an overview of real estate title insurance, which is a common feature of many jurisdictions worldwide and represents a potential tool for the Omani authorities to adopt in their continued development and enhancement of the Sultanate’s real estate framework.

Title Reports
In many jurisdictions, there are title companies that perform the service of reviewing the real estate records on file at the Real Estate Register and issuing a report which identifies the owner and all of the interests and/or agreements that are filed against that property.

The fees for the title companies' services are paid by the buyers, usufructuaries and lessees for their services. Prior to the conveyance of title, an attorney for the buyer reviews the title report and advises the buyer of the "condition of title" to the property and whether it complies with the requirements set forth in the contracts between the buyers and sellers.

Title Insurance
The attorney then gives notice of any title objections to the seller, in order for the seller to cure such defects. At the closing of the conveyance of title, the title company converts the title report into a policy of title insurance, in favor of the buyer, usufructuary (or, as relates to a mortgage, in favor of the lender) which insures that the policy names the correct owner and identifies the agreements that have been filed against the property with the Register.

In the case of either corporate ownership or individual ownership, a title company insures that the purchaser owns the property subject only to certain interests which are listed in a "title report". As part of the closing documents, the corporate entity delivers to the title company evidence of the company's organizational documents for the title company to review and determine whether the corporation has the power to own, lease and/or mortgage the property and whether the corporation is then currently in existence in "good standing" ─ i.e., that it has paid all of the corporate taxes and filed all of the required forms and taxes with the appropriate taxing authority.

Features of Title Insurance
Title insurance provides indemnity insurance against financial loss from defects in title to real property and from the invalidity or unenforceability of mortgage liens. Title insurance is principally meant to protect an owner's or a lender's financial interest in real property against loss due to title defects, liens or other matters.

Title insurance can be purchased to insure any interest in real property. Most institutional lenders would require title insurance to protect their interest in the collateral of loans secured by real estate. The basic elements of insurance provided to the lender cover losses from, inter alia, defects, liens or encumbrances on the title; non-marketability of the real property; invalidity or unenforceability of land rights.

Taking account of the growing complexity of real estate transactions in Oman due to the recent surge in ITC and non-ITC real estate developments, the introduction of an appropriate law to allow title insurance would create more security and certainty in the market.

Local Associations in Oman

A local Omani association is a group, formed in accordance with its bylaws, comprised of a number of individuals with the objective to carry out not-for-profit social, cultural or charity activities and registered with the Ministry of Social Affairs, Labour and Vocational Training (the “Ministry”).

Permitted Functions
An association may function in the following areas:
• welfare of orphans;
• welfare of children and adults;
• ladies services;
• welfare of the aged;
• welfare of handicapped persons and persons of special needs; or
• any other field or activities which the Minister may deem necessary to incorporate.

An association is prohibited from engaging in certain activities including political activities, forming political parties and interfering in religious matters. Foreign associations, local organisations and sports and technical associations and clubs are governed by separate specific laws.

Establishing a Local Association
To incorporate an association, it must have written bylaws duly signed by at least twenty Omani founding members. The bylaws set out, among other things, the name, objectives, scope of the activities, details of the founding members, conditions governing membership and the financial resources of the association.

The founding members must then hold the first general meeting of the association and elect the first board of directors from among themselves for a period of one year. This board then authorises the relevant member to apply for registration of the association with the Ministry.

Governance Matters
Once registered with the Ministry, the association needs to maintain various books, including a register of members and subscriptions paid, minutes of the meetings of the board of directors and general meeting, and account books at its premises. The Ministry has the right to inspect the registers, books and documents of the association as well as monitor the activities of the association to ensure that they are in conformity with Omani law and the association’s bylaws.

All of the members of the association who have followed the bylaws and been a member for at least six months (except for the first general meeting) shall be entitled to attend the general meeting. There is a set procedure which needs to be followed for the calling and holding of ordinary and extraordinary general meetings. Copies of the minutes and any resolution adopted by the general meeting must be provided to the Ministry within fifteen days of the date of each meeting.

The board of directors of the association needs to have between five and twelve members, and directors are appointed for two-year terms (except for the first board). The board is responsible for the activities of the association. As mentioned, copies of the minutes and any resolution adopted by the board must be provided to the Ministry within fifteen days of the date of each board meeting. The Ministry has the right to invalidate any board meeting or resolution adopted by the board if convened in breach of Omani law or its bylaws within one month of receiving the relevant documents.

In addition, there are further detailed provisions in the law on the financing of associations, merger and dissolution of associations and public service associations, as well as the penalties for non-compliance with such provisions.