Title Insurance - Part 3 of 3 #323

By Gerry Neely
B.A. LL.B

Some banks and credit unions are now requiring title insurance for the refinancing of consumer mortgages. This, according to a bank spokesperson, provides for a more efficient system at less cost. From the lender’s prospective, the benefits of title insurance coverage include: removing concerns over negligence; making the insurance no-fault; providing survey coverage; providing coverage against fraud and forgery; providing bylaw coverage; overcoming the problems of independent legal advice; and including foreclosure defence coverage.

Examples of the advantages of title insurance include the following. A lender wanted a new survey showing all structures located on a large parcel of land in Alberta, but the borrower balked at paying the estimated cost of $14,000. The borrower agreed to provide title insurance at a cost of $2,000 and the lender agreed to accept a boundary survey, which only cost $2,000. Where a lender required a permit from a local authority that had been approved but not issued and wouldn’t be issued for two to four weeks after the date for closing, the title insurer satisfied itself that the permit would be issued and gave title insurance satisfactory to the lender which enabled the closing to take place on time.

There are at least four title insurance companies operating in Vancouver, and another half dozen in Ontario and Alberta. Title insurance companies are regulated by the Federal Government through the office of the Superintendent of Financial Institutions. In addition, they are regulated in British Columbia by the Insurance Council of British Columbia. In accordance with the Financial Institution Act, this council's responsibility is to monitor marketing activities, policy content, and competitive activities to ensure protection to consumers.

Premiums and the terms of coverage for commercial policies are negotiable. While each policy contains a number of similar standard clauses, each policy is different and therefore each needs to be reviewed to determine the coverage each provides. The insurance premium for a residential mortgage lender for a loan of less than $500,000 is approximately $150. The residential owner of the property will pay an extra $50 for a buyer’s policy. A commercial premium for a loan of $1,000,000 is approximately $1,300.

The Torrens system, which is the backbone of our registration system in British Columbia, deals with many of the risks that are insured. However, human error by those professionals using it, as well as a lack of full coverage of losses and legal fees by the Assurance Fund, means that there are circumstances where title insurance may resolve a problem at less cost than other alternatives. One would have to carefully weigh one's circumstances against the cost of covered risks, to determine whether payment of the premium is justified.

From reading the extent of the available information, it appears that title insurance is here to stay in Canada, and that real estate practitioners and lawyers will have to become familiar with it. Ontario lawyers decided to meet the challenge by establishing their own title insurance company. A suggestion was made in a recent Continuing Legal Education Seminar that advising clients with respect to the pros and cons of title insurance will become standard practice, such that failure to do so adequately may constitute negligence on the part of the licensee or lawyer.

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