This low-cost insurance product has profoundly changed the way property transactions are done in Canada.
Title is at the very heart of every real estate transaction. A purchaser needs proof that the property being bought is free and clear of liens, that the seller really owns it, and can sell it. To do this the buyer must "search title". This can be a long, complicated process. Lawyers (or their assistants) sometimes spend hours at the registry office going through books and then checking with various authorities for liens etc. Often, they have to search back 40 years before they can give their "opinion of title", which is still not a guarantee - just an opinion.
In addition, the mortgage lender wants an accurate, up-to-date, professional survey. All this work, which must be done before the transaction closes, takes time and costs money. Title insurance eliminates most of the burden.
Here's how it works. For a one-time fee, usually about $ 300.--, a purchaser can buy a policy that acts as a guarantee that title is free and clear and marketable at that time, so everyone can stop worrying about it.
Even if there are potential problems, the insurance company will take a chance where the bank will not, they just need enough information to assess the risk. They don't require an up-to-date survey, that alone will save many people about $ 600,--
Title insurance covers just about anything that can affect title to a property, both at closing and later. The list includes survey error; unregistered easements; certain zoning violations; prior construction liens; defects in title; error, omission or fraud on the part of a solicitor and even fraud on the part of the borrower, so the lender is protected. If there is a title dispute, the insurance company provides a no-fault resolution method, they will pay all legal fees and costs to defend title, and will cover any loss up to the value of the policy. What's not covered are environmental problems like soil contamination, that's a whole different kettle of fish. Even so, title insurance gives so many benefits for such a low cost, it's hard to resist.
So why is it just coming along now?
It developed in the U.S., where land registry is not well regulated or very reliable. Title insurance brought some order to a system that still has a bit of the wild west about it. The business grew dramatically in the 1970s because of a boom in the even riskier second mortgage market. In 1991 two large U.S. companies with a lot of experience, expertise and cash flow set up shop in Ontario.
This was virgin territory for them. Our well-regulated registry system had created little demand for title insurance, most people here had never even heard of it. However no system is entirely without risk and even so, these companies believe most purchasers will buy title insurance simply because it is cost-effective.
The Law Society of Upper Canada, the group that regulates and oversees lawyers in Ontario, spent a long time looking into the implications of title insurance on the law profession. At the end of the day, they decided the best thing to do was to get into the business themselves and are offering their own package called Title Plus. Some lawyers in Orillia believe that soon you won't need a lawyer (or a surveyor) to close a real estate transaction. Are they worried? Not really, with insurance companies paying for litigation, the extra court cases will more than make up for the lost business. Many people too want a real survey so they can see exactly what they're buying, so the survey business won't die.
The real winner here is the consumer, which is why many observers expect title insurance to quickly become the norm, especially now that the Law Society is backing it.
It is our job to keep on top of the latest trends in real estate and pass the information on to you, so just ask.
Birgit Hoesterey, Sales Representative
Century21 B.J.Roth Realty Ltd., Brokerage, Washago, ON