Title insurance is an added closing cost on virtually all purchases and refinances, especially in Ontario, where titles are predominantly electronic. An electronic title brings with it several advantages, including ease of registration and ease of access to a property’s history and current registered documents. But opportunities for fraud have also arisen from this ease of registration and the fact that most people do not search their title on a regular basis.
The simplest solution to title fraud is title insurance. My clients occasionally see the title insurance premium and ask, “Do I really need that?” The answer is yes. Often the mortgaging bank requires title insurance. Sometimes it is an essential protective and proactive requirement from the real estate solicitor.
For a one-time premium of a few hundred dollars, the level of protection title insurance provides is extremely valuable. The buyer is covered for several property risks – including title fraud, post-closing construction liens accruing to the previous homebuyer, lack of compliance with building permits, unknown encroachments causing loss, and unknown tax arrears – for as long as they own the property.
Title insurance has saved many homeowners and investors from financial ruin, stress and years of aggravation. In our practice, we use First Canadian Title [FCT] for policy coverage. To give investors some insight into actual claims and loss coverage, the claims department at FCT shared some recent examples of covered claims.
A young man purchased an investment property for $204,500, as well as an FCT homeowner title insurance policy. Two years after the purchase, he received a notice that the mortgage was in default and the lender would be taking possession of the property.
Confused, the insured sought counsel, as he knew his mortgage was in good standing. An investigation revealed that the title was fraudulently transferred from the insured homeowner, and a mortgage in the amount of $165,000 had been fraudulently registered on the title. Mortgage funds were paid to the fraudulent transferee, who was now nowhere to be found.
FCT coordinated and retained counsel on his behalf and ultimately paid out $12,548 in legal fees to remove the mortgage from title and rightfully transfer title back to him. The owner retained his investment property while being spared the time, expense and stress of having to defend himself against the fraud.
Lack of building permits
Insured homeowners received a letter from the city advising them that the basement renovation and the deck, deck addition and deck roof in their recently purchased home were constructed without building permits. The city demanded that the proper building permits be obtained for the finished basement and that the deck, its addition and roof be removed. The cost of complying with these requirements amounted to $54,044.
Because the homeowners had a title insurance policy that insured against losses related to forced removal or remediation due to a lack of building permits, they didn’t have to pay any of the costs related to the city’s order.
The insured purchased a golf course with plans to develop the land to include a larger golf course and a resort. The municipality provided confirmation that the land could be developed for these purposes. However, after closing, the insured was subsequently notified by the municipality that there was an error and the land was zoned as ‘open space/ residential’ and applying for rezoning was not an option. As a result, the land could continue to be used as is, but the development plans could not proceed.
The insured received a claim settlement for the loss, which gave them the choice to use the property in keeping with current zoning or sell it without incurring a financial loss.
Encroachments at a commercial property
After taking possession of an apartment complex, the insured was notified that a portion of the parking lot encroached onto city land. Although the parking lot had been used by the previous owner for years without dispute, the new owners were now being forced by the city to move the lot in order to accommodate a widening of the road.
There was enough space to relocate the parking lot to the other side of the building, but this relocation came with a hefty price tag. FCT paid the claim, worth tens of thousands of dollars, without compromising the property value or the number of parking spaces.
In each of these instances, the absence of title insurance would have cost the homeowner and/or investor thousands of dollars. Title insurance might seem like an annoying extra cost at closing, but like all insurance, it is critical to have it in place for the moment when you need it.
Harpreet Hans is a partner with Gunding & Hans LLP in Milton, Ontario. She practices exclusively and extensively in the area of real estate law and mortgages.
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