Title conversions: How lenders can make their securities much stronger

Consider a situation where a lender is processing a financial facility secured by two properties within the Government Lands Act (GLA) land regime.

On one hand, they receive a converted GLA title, while on the other hand, they encounter a Form LRA 33 transfer instrument as the title document.

The lender is suddenly faced with a dilemma: how do they reconcile the deferring formats and ensure that both titles are equally credible and secure?

This underscores the important question about consistency, reliability and legal interpretation addressed in our previous article on transitioning GLA titles. 

Financial institutions always enlist comprehensive legal guidance in the quest to safeguard their interests, optimise their security portfolio, and stay ahead of the curve.

At the heart of this in 2012 were discussions around a solution that would provide the necessary comforts in relation to GLA titles offered as security during the transitional phase, until certificates of title are issued in the prescribed form. 

The strategy adopted then was to obtain indemnities from registered property owners as a safety net, ensuring compliance with the specific procedures and requirements for GLA title conversion if their GLA properties were called for the transitioning process, which overall objective was to changeover from the old deed-based system to the title registration system. 

With all the changes since 2012 and things being in a state of flux, it has become essential for lenders to weigh the effectiveness of the indemnities in their vaults and whether a failure or delay to take a proactive approach to initiate the transition of GLA titles exposes them to any operational risks, particularly in relation to the enforceability of their interests. 

The indemnities were previously supportive of the lenders’ interests during the transition process. However, if the legal or regulatory landscape has evolved, and compliance with the applicable regulations or requirements is now possible, it can impact the effectiveness of existing indemnity agreements. 

Their efficacy can be diminished due to a lack of commitment to prioritising compliance, given the change in circumstances.

Taking these factors into account, it may be fitting and essential to weigh the benefits of prioritising GLA title securities in the ongoing nationwide land conversion and migration exercise and enforcing the GLA indemnities.

Here are three key considerations that provide further rationale for the importance of this prioritisation: 

Indefeasibility of title

One cannot begin to underscore the benefits of updated titles and how they can address titling issues under the deeds system. By consolidating the chain of deeds that make up a GLA title into a single centralised certificate of title, lenders benefit from the indefeasibility of title, significantly reducing the risk of competing claims. 

Enforcement delays

In assessing the effectiveness of indemnities in the event a borrower defaults on their obligations, the recovery process may be subject to delays or bureaucratic hurdles, particularly if there are backlogs in the land office, if the transition process is initiated at that point. This can also impact the marketability of property. 

No associated fees

Another benefit is that property owners can convert their GLA titles for free because the law itself mandates the transition, making it accessible and cost-effective. Previously, the conversion of GLA titles was a different process involving various steps and associated fees. 

Granted, initiating the transition process may involve an administrative burden as it requires time, resources and expertise to assess lenders’ securities portfolio, and navigate and coordinate the transition requirements. The decision ultimately depends on the specific circumstances, risk tolerance, and strategic objectives of the lender. However, there is indisputable value in taking proactive steps to prioritise the transition and conversion of GLA titles. 

This strategic approach would not only enhance the integrity of lenders’ security assets but also contribute to the overall liquidity of these assets.