The Role of Title Insurance in Your Home Purchase
In the purchase of a home, one of the questions routinely asked of the real estate lawyer by his/her client is whether to purchase title insurance as part of the transaction. In order to intelligently answer this question in the context of any particular real estate purchase, it is necessary to first understand what title insurance is, and, perhaps more importantly, what it is not.
Traditionally, in Ontario, the lawyer’s role in the purchase of real estate, whether it be residential or commercial, was critical. He/she conducted a number of “searches” including a full historic investigation of the chain of title of the property in an effort to determine the quality of the “title” which the purchaser would obtain upon the closing of the transaction. Other searches included municipal tax status, land use zoning, municipal property standards and building standards and utilities. Based on the information obtained, the lawyer would form an “opinion” of the title which the purchaser would receive. This opinion , and any exceptions placed on the opinion, in turn, produced a qualified “guarantee” of title.
With the increasing popularity of title insurance, the role of the lawyer has changed somewhat, but is just as important. The title insurer, rather than a guarantee, provides an indemnity to the purchaser. To illustrate the difference, imagine someone offers to sell you a dog. The dog is said to be a two year old pure bred Jack Russell. If I guarantee the foregoing, you are entitled to just that. If, however, you later find out that the dog is a twelve year old pit bull, enforcing the guarantee might prove difficult, and certainly would involve replacing the dog. An indemnity, however, would provide you with compensation for the difference between what you received and what you thought you were receiving. No dog, just dollars.
As I have often said to my clients, your home purchase is likely to be the most expensive purchase you will ever make. Your enjoyment of your home reflects your enjoyment of life in general. It is important, therefore, that there be few, if any, surprises down the road. It would seem prudent to conduct any and all investigations of the property and, as well, to obtain any indemnities which are available in the form of Title Insurance.
Title insurance is often discussed in the context of the presence or absence of a recent survey. Indeed, most mortgage lenders accept title insurance in lieu of a survey as part of the mortgage transaction. However, title insurance is not the same as a survey. To illustrate, suppose you have placed an offer to purchase with respect to a property and have, based on your careful inspection of the apparent boundaries, assumed it comprises a full acre. Should you later, after closing, discover that the property is less than an acre, and if the legal description is correct, title insurance probably will not help. The title insurer’s indemnity only applies to the property you have actually bought.
The foregoing problem can be addressed by obtaining a current survey of the property. This document describes the boundaries and extent of the property. Your lawyer will examine the survey, and should he/she have questions address them to the Ontario Land Surveyor, who will provide a narrative explanation if needed.
We begin to see that the purchase of a home is a complex process, involving many investigations. The purchaser should, in my view, seek to protect his/her investment as much as possible. And this brings me to my final point about title insurance. The increasing incidence of real estate fraud, including the actual theft of the owner’s property has created a special need for title insurance, especially after the closing of the transaction.
In fact, title insurers have taken the issue one step farther: currently, title insurers offer a product which indemnifies against actual identity theft, and the “real estate” and “non-real estate” losses one might encounter as a result.
I bet only a few years ago you didn’t think you would ever need to insure your identity. It now seems you do.