TITLE INSURANCE – WHAT IS IT , DO I NEED IT?
Within the last 10 years, a new insurance product has arrived in Alberta. It is commonly referred to as title insurance.
What is title insurance? This product was never available before so what has changed? What does title insurance provide that cannot more adequately be provided by a Real Property Report (RPR)?
Title insurance has been a popular product throughout the United States for many years. The three major title insurance companies providing insurance in Alberta all have a parent company in the USA. These companies first started Canadian operations in Ontario.
Both the USA and eastern Canada operate a different Land Titles registration and transfer system then we have here in Alberta. We are fortunate in Alberta to have a government-guaranteed Land Titles system commonly referred to as the TORRENS system. Throughout the rest of North America, when you get a Title, you can never be completely sure that it discloses everything. For example, there could be an unregistered mortgage or unregistered transfer that may impair your title. In Alberta, “what you see is what you get” and the government guarantees this.
Previously, title insurance primarily covered the issues covered by the Torrens system. Eventually, companies became innovative and expanded their coverage, so their insurance had applicability here in Alberta. Over the years they have continually added new items to their coverage. Now, their product offers substantial benefits at a very reasonable one-time cost.
Some of the issues title insurance covers is as follows:
- It covers the gap between submission and registration. A couple of years ago when registration was taking 5 weeks or more, you could never be sure when you submitted your documents as to other registrations in the stream that may affect your title. Title insurance will step in to deal with this.
- It will cover deficiencies that would not show on a Real Property Report such as unregistered utility easements or builders liens or matters that would be shown by non-Land Titles searches such as deficient corporate status. It will cover hidden deficiencies such as underground storage tanks or underground septic tanks. Coverage is also provided for unknown special assessments on condominiums.
- Title insurance covers issues that would have been shown on a Real Property Report if one had been obtained. Use of this product can avoid the need to obtain a Real Property Report. It also covers internal non-compliance issues that would never be shown on a Real Property Report such as lack of building permits or failure to meet building code on renovations such as a basement development.
Even where there are known defects, title insurance will often underwrite these issues. This could include a fence in the wrong location or a deck that is too big for the property.
Most of this coverage continues after the closing date. Perhaps the most important coverage that continues after the closing date and during the entire time the property is owned is against forgery, fraud, duress, incompetency, incapacity, or impersonation.
Title insurance is an insurance product. As such, it does not fix a problem. It provides insurance or indemnity coverage. In other words, the title insurer has no obligation to do anything until a problem actually arises. When this happens, they have the choice to pay damages rather than actually fix the problem. Problems can be deferred or masked instead of fixed.
Deferring or masking problems can come back to haunt all parties at a later date. For example, when a seller, who accepted title insurance when they bought, sells and the buyer does not accept title insurance they may be forced to solve the problem. Obtaining Encroachment Agreements, especially where fences or other structures encroach onto municipal land can be quite costly. Likewise, applying for and obtaining development and building permits can be time consuming and expensive. If a buyer insists on this solution, the seller may be forced to undertake an expensive remedy and may look to the realtor and lawyer who helped them originally purchase the property for some redress. Accordingly, it is doubly important to ensure a purchaser understands the extent and impact of title insurance coverage and the fact that it does not apply when they sell the property. By simply insisting that any new buyer obtain title insurance rather than relying on an RPR, they will continue to defer any issues.
Overall title insurance is a valuable addition to the real estate marketplace in Alberta. The coverage for future fraud for the entire ownership of the property by payment of a one-time premium is enough justification to purchase title insurance on every real estate purchase. In some cases, title insurance is the only way to effectively close a real estate deal.