We recently attended a seminar led by lawyer Joel Enchin of RZCD Law Firm LLP, who is well versed in the area of Title Insurance. Title Insurance is a product many buyers don't fully understand and don't always take advantage of. This type of insurance policy is paid for with a one-time premium and has three key strengths: first it can help close a deal that would otherwise be delayed due to existing obstacles to a clear title. Secondly it protects property owners and their lenders against losses related to the property’s title or ownership should any ‘cloud’ to a clear title arise. Thirdly, it offers fraud protection.
Title insurance offers smooth, less costly ‘No Fault Resolutions’ of most residential property sales and/or disputes. When things are simplified for lawyers, both purchasers and lenders save money and move on more quickly. Today, banks require Title Insurance in order to provide a mortgage.
Title insurance usually negates the need for a new survey or Real Property Report (RPR) as it is largely acceptable in lieu of an up-to-date survey. This saves not only money but weeks of waiting.
Typically, Title Insurance protects property owners against many issues that could be detrimental to selling or mortgaging a property and any legal expenses incurred in keeping that title secure. For example, title defects can include: unpaid debts left by the prior owner such as property taxes or water bills. Should property tax arrears show up, a lawyer can submit a claim to the insurer who may pay the bill directly or reimburse you the funds. This insurance is definitely important when buying a power-of-sale property with little disclosure from the bank.
Past mortgages or condominium charges, errors in surveys and public records; encroachment issues, outstanding work orders or permits and various types of Title Fraud are all potential quagmires for a new owner without Title Insurance. Keep reading for examples below in italics.
When past work done on a property becomes an issue, Title Insurance may help. One gentleman who purchased a new home with a large deck found it did not meet building code standards and had been built without a permit. The city issued a work order, which the homeowner took to their title insurance provider. This issue would not have been revealed by usual searches yet it created a loss for the homeowner, thus the insurer funded a newly built deck.
What about lot size disputes or zoning bylaws? If a bylaw was breached or a neighbour insists your fence sits on their property line and/or you actually discover your property is smaller than you were told at purchase, depending on the details of each case, the insurance may cover your legal fees should you need to litigate to defend your property line. Title Insurance is a small one-time fee that far outweighs the cost of even a handful of calls to a lawyer.
An associate of ours purchased a new home with a lot that was 25’ wide. After they took possession it appeared the fences did not sit accurately on the property line. A new survey was done at the new owner’s expense – proving a neighbour’s encroachment. The Title Insurance company reimbursed him accordingly for the value of the encroached land and the cost of the survey.
Remember, Title Insurance is not only for protection after close, but to help expedite a close. One purchaser of a property on a severed lot, came upon a half dozen active building permits which, like work orders, needed to be closed off to obtain a clear title. It turned out the permits were related to the other lot. Arrangements were made between all parties and the insurer to enable the sale to close faster than if the Title Insurance had not been in place.
Perhaps the most sensitive areas are Title Fraud and Mortgage Fraud, both forms of Identity Theft, which can be very painful and expensive. Enchin feels this protection of Title Insurance is the strongest feature. What if a property is mortgage free? If someone steals your identity, they can take a mortgage out on your house. (Mortgage Fraud) Enchin spoke to us of a scenario where an owner does not live at their mortgage free income property, rents it to tenants and finds out a tenant posed as the owner and sold the house. (Title Fraud) The original owner found out only when approached by the bank for non-payment. The new owner was misled, so they are not at fault. The fraudster has disappeared. Thankfully, the Title Insurance provider reimbursed the true owner financially for their loss.
Before Title Insurance these types of crimes meant a lot of litigation and dealing with the land registrar’s office which could take many years to resolve. In some instances, the original owner – often a senior citizen- would sadly pass away before things were resolved. Title Insurance protects against fraudulent “Straw purchasers” who dupe agents, lawyers and the bank and then disappear with the money.
When a dispute or costly repair arises with your property contact your title insurance company. You may be amazed how it protects you.