Title Opinion And Title Insurance

By ZARAH WALPOLE

Note: The foregoing information is based on the current practices and policies of Stewart Title Guaranty Company and coverage examples refer to Stewart’s Gold Owner and Lender Policies.

You have two methods available to you for protecting your interest in the new property.  One is a solicitor’s title opinion, the other is a policy of title insurance.

Overview of a “Title Opinion”
The traditional method of assuring title in Ontario has been the solicitor’s Title Opinion.  The Title Opinion is based on a series of inquiries performed by the lawyer with various bodies, including the Land Registry Office and the relevant local authorities.  These investigations are sometimes collectively referred to as the lawyer’s due diligence.  The end result of the due diligence is a report provided to you after closing that summarizes the lawyer’s findings and provides you with an opinion from the lawyer of good and marketable title.  In the event that the lawyer misses available information in a negligent fashion, and the client experiences a loss, recourse may be sought through the lawyer’s professional indemnity insurance policy.  Lawyers practicing in Ontario are required to carry insurance for negligence through a company called LawPro, a wholly owned subsidiary of the Law Society of Upper Canada.

Overview of a “Title Insurance Policy”
A title insurance policy is a contract of indemnity between the insurer and you that provides compensation for any actual losses arising from a title defect or an illegal use of the property that would have been disclosed by a search of the public records.  The scope of covered risks is quite broadly defined in the policy, and for the most part they mirror the subject matter of a title opinion.  In addition, most title insurance policies cover the following losses suffered by a purchaser:

• where necessary permits were not obtained
• where a government report failed to disclose a work order or zoning infraction
• where a survey would have revealed a material encroachment or zoning by-law violation
• where someone else claims an interest in your land which is not in the public record
• where you suffer a loss as a result of fraud on the public record, either before or after closing.

There is a premium to be paid for the policy; however the premium can usually be more than off-set by the savings in searches not required by the insurer.
Where a title insurance policy is being relied on, Ontario regulations require that the lawyer still perform a search of title at the Land Registry Office, however the extent of the search may be limited.  So, in order to obtain a policy we will also render a title opinion, but it will be directed at the title insurance company and not to you.  In addition, title insurers waive many of the off-title searches that would traditionally be required of the lawyer, and generally insure against any adverse circumstances that would have been disclosed by those searches.  Such waived searches may include: building & zoning inquiries, unregistered easement reports, corporate status searches, subdivision agreements, and writs of execution against previous owners, among others.

Advantages of a “Title Insurance Policy”
Our general recommendation is to take advantage of the benefits of title insurance because it provides a variety of protections that simply cannot be obtained through a traditional Title Opinion.  Many of those protections are alluded to above.  The following is a more comprehensive summary of the advantages of a title insurance policy.

Surveys:
A title policy insures against any loss in marketability arising from adverse matters that would have been disclosed by an up to date survey.  Thus, the policy is most certainly of value when there is no survey available, and even has value when an existing survey is being provided.  In the latter regard, rarely is an existing survey completely up to date.  Even if the vendor represents that there have been no changes to the survey, such statements are to the best of their knowledge and the vendor may have no knowledge of changes to adjoining properties.  Many survey statements are obtained from the vendor shortly before closing when they are of little use; or more problematic, delivered on closing when they are easily missed.  Surveys prepared at the time of original construction are often foundation only, and do not show siding, eves, porches, or other improvements.  Moreover, title insurance coverage will include errors on any existing surveys, bearing in mind that only the original party who retained the surveyor has a formal right to sue that surveyor for mistakes.

Fraud:
A Title Opinion is necessarily qualified by the authenticity of the title documents obtained.  A title insurance policy is not so qualified; thus, a fraudulently held or conveyed title is a covered risk.  For example, the purchaser is protected in the event that the vendor is not the true owner of the property and/or does not have authority to sell, or in the event that the vendor’s lawyer negligently or fraudulently fails to pay out or discharge any existing mortgages pursuant to their undertakings.

Errors in Public Records:
A Title Opinion is necessarily qualified by the accuracy of the Registry records and the municipal letters obtained; conversely, a title insurance policy covers errors in public responses.  For example, a tax certificate may be incorrect; perhaps the wrong roll number was referenced, or the vendor's cheque may bounce immediately after the certificate has issued.  Most municipal replies contain an E. & O.E. qualifier (Errors & Omissions Excepted).  Thus, the municipality assumes no responsibility and your lawyer, having followed prudent practice, cannot be held accountable for such errors.  A title insurance policy, on the other hand, covers the resulting arrears.  The same type of error coverage would apply to other municipal searches which may contain inaccuracies such as a building/zoning reports or septic inquiries.

Defense of Title:
Your title insurance policy will include a positive duty to defend any challenge to your title, regardless of whether the problem was present or discoverable on closing.  This is fundamentally distinct from a Title Opinion, which deals exclusively with the status of the property on closing, and addresses the title only to the extent that it was reviewable (see above).  So, for example, if after closing a neighbor asserts a claim for adverse possession (squatter’s rights) against your title, something a lawyer might not be able to discover, then the insurer will have a positive duty to defend the title and pay any loss.  Similarly, if any time after closing someone registers a document against your title, either erroneously or fraudulently, then again the insurer will have a positive obligation to take measures to protect and defend the title, including all legal costs.  Examples of such registrations might include a construction lien registered for work done prior to closing, or a certificate of pending litigation surrounding a spousal interest in the property which was not disclosed by the vendor.  It is in this manner that title insurance has the singular ability to protect you against fraudsters who might try to divest you of your title or register fraudulently obtained mortgages against your title in the future.

Known Defects:
As with most types of insurance, you cannot generally insure yourself against things you knew about, caused or agreed to.  There are, however, situations where title insurance companies will accept known risks associated with your property.  For example, the vendor may have discovered a municipal violation and fully disclosed it in the Agreement of Purchase and Sale.  Prior to the advent of title insurance, purchasers were left with the option of “take it or leave it”; but now in many circumstances a title insurance company will give some coverage for such risks.  This becomes all the more beneficial where lender requirements must be satisfied.  These special situations must obviously be disclosed, explored and underwritten on a file-by-file basis.

No Fault:
We have mentioned above that lawyers and clients are protected against mistakes by the lawyer through the lawyer’s professional indemnity insurance.  To err is human and it is sometimes part of a lawyer’s role to make judgment calls on their client’s behalf.  Title insurance frequently covers those situations where mistakes are made or judgment fails; and it does so on a no-fault basis.  The client need only prove the loss and establish that it arised from a covered risk.  This differs dramatically from the unpalatable prospect of court proceedings against your lawyer and the hurdles of establishing negligence against that lawyer.

Permanence and Security:
Title insurance can provide longer term and more secure protection than a Title Opinion because it is not subject to the limitations of disbarment, death or retirement from practice.  It is a one-time premium, yet the policy remains in place as long as you retain an interest in the property.  While the title policy is a contract and may be subject to the corporate solvency of the insurer, there are abundant consumer protections in place.  Reserves are legislated and regulated through the Office of the Superintendent of Financial Institutions (OSFI).  Using Stewart Title as an example, Stewart has been in business for well over 100 years, and Canadian policies are backed by the US parent with 2003 revenues in the neighborhood of $1.7 Billion US.  In short, title insurance companies are generally large, stable and secure financial entities.

For all of the foregoing reasons it is our opinion that a title insurance policy should form the basis of your title protection in all circumstances.  Having said that, having us conduct any or all of the usual searches remains an option to you.  Every property and every transaction must be considered individually in this regard.  There are pros and cons to conducting those searches.  Expense is one consideration.  You should also be aware that, like any form of insurance, a title insurance policy will only cover actual out-of-pocket losses incurred by you.  Moreover, your loss will need to be defined in monetary terms, and there are certain property defects which money may not be fixable to your liking.  Conversely, you should also be aware that if searches are performed and problems are disclosed, we may then be limited as to the extent of insurance coverage available to you.  While the disclosed defects may be requisitionable against the vendor, deadlines may be an issue, or the defect may be of such a nature that the vendor is unable or unwilling to remedy them.  In this instance you may be presented with a take it or leave it scenario.  These are some of the things to consider when weighing whether to perform additional searches.

 

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The above is not intended to constitute legal advice. Please contact a lawyer to clarify your legal rights.