May 31 | 2017

Does Your Client Really Need Title Insurance?

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Does your client need title insuranceThe topic of title insurance may come up when clients are purchasing a new property, and a common question is, “do I really need it?”

Well, title insurance in Canada has come a long way from when we first introduced it to the market over 25 years ago. It offers the best defense against title fraud, as well as survey and title issues/defects. It can also protect your clients from unexpected costs that may threaten their financial status.

For instance, Jason and June* finally found their dream home after years of saving and searching for the right property. Once financing was approved, they happily moved into their newly purchased home. Shortly after moving in, they received a notice from the city about outstanding tax and water utility charges amounting to over two thousand dollars. This was a very unwelcome surprise given their tight budget as first-time homebuyers. Luckily their lawyer had recommended they purchase a title insurance policy, which covered outstanding tax and utility bills. Because of their title insurance coverage, they were spared the extra expense when the claim was paid out by FCT.

Commercial property owners also benefit from protecting their multi-million dollar investments with title insurance as it covers issues like encroachments, zoning violations, unpaid taxes and utilities, etc. For example, a developer Jack*, purchased a golf course with plans to develop it into a larger golf course and resort. The municipality provided confirmation that the land could be developed for these purposes. Unfortunately, after closing, he was notified by the municipality that there was an error and the land was zoned as “open space/residential” and applying for re-zoning was not an option. As a result, the land could continue to be used as is but development plans could not proceed. Because FCT had insured the value of the land along with the approximate value with the improvements, Jack received a claim settlement for the loss in property value because of the zoning error. With the claim settled, he had the choice to use the property in keeping with current zoning, or sell the property without incurring a financial loss.

So does your client really need title insurance? You decide.

*Names have been changed to protect the privacy of our clients. This information is provided as general information only. For further details please review the subject policy.

May 4 | 2015

Understanding FCT’s practice of insuring over title claims

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insurance_smallAdvocateDaily.com describes itself as a hybrid legal news platform and blog for its members. Recently, contributor Blair Drummie posted a blog entitled The problem with ‘insuring over’ title claims.  In the article he suggests that title insurers are “kicking the can down the road” on title claims which is causing “real problems” for property owners. He went on to state that the same insurers are now having to pay out claims as a result.

The Title Insurance Industry Association of Canada, of which FCT is a member, responded by advising that title insurers follow a two-pronged process that insures over a title claim so that a transaction can close on time with minimal cost and then the claim is processed post-closing. Lawyers always have the option to recommend that an issue be fixed prior to closing because they are the “quarterback” of the transaction. You can view their response here.

The exchange between Mr. Drummie and the Title Insurance Industry Association of Canada raises some key points to keep in mind:

1. The legal adviser is always in the driver’s seat

The real estate lawyer (or notary if in British Columbia or Quebec) always has the option of recommending other options to protect their client’s title. Generally, the title insurer has no interaction with the homebuyer. The lawyer retains full discretion to plot the best strategy to represent their client’s interests, including negotiating easements, pre- or post-closing, title insurance, etc.

2. What is the insurer’s post-closing plan?

If the insurer is going to insure over the claim to meet the closing deadline, ask what the plan is for remedying the problem. The option to insure over is best suited to what I call “paper problems,” such as a spelling inconsistency in the name of a past owner or other small discrepancy or error.  In such a case it is extremely unlikely that there will be a legitimate attack on the insured’s title, but it is conceivable. Find out what the insurer’s approach to the problem is before securing the title insurance. And if they are planning to fix the issue, ask them when.

3. The more serious the problem, the less likely that insuring over is a complete fix

As mentioned in point #2, insuring over a problem is best suited to “paper problems” such as:

  • A “subject to” interest in the thumbnail legal description for an unresolved spousal interest that might be decades old; or
  • A “subject to” interest arising from a previous owner taking title in a maiden name and selling in a married name without the appropriate recital.

In these cases, issuing a policy with no exception to coverage is the simplest and most efficient way in which to resolve the claim.  It allows the transaction to close on time and in the event the paper problem turns out to be a real problem, the owner has the coverage of the policy to fall back on.

4. The Agreement of Purchase and Sale

It is not uncommon for an Agreement of Purchase and Sale to deal with the issuance of title insurance and an answer to a title requisition or objection. For example, paragraph 10 of the Ontario Real Estate Association standard form of agreement of purchase and sale provides that a seller may obtain title insurance as an answer to a title requisition. It is also common for the Agreement of Purchase and Sale for a  property being sold under power of sale to contain a specific provision requiring the buyer to accept a title insurance policy as an answer to a title requisition.

In keeping with the above, FCT aims to take a reasonable approach to insuring over problems. We recognize that simply insuring over a problem as a method of resolving a claim is generally reserved for simple issues and that many problems should, in fact, be remedied after closing.