WHY AND WHEN TITLE INSURANCE?

If you’re buying a new home or recreational cabin in B.C., you might wonder if you should get title insurance. What protection do you get if you shell out the one-time premium for this?

Title insurance started as a fix for problems with old-England style land transfer systems in some U.S states. It insures buyers or lenders against potential loss of title (i.e., ownership of the property you’re buying) and problems with the title. Now a billion-dollar industry in the U.S., it has also for years been available in Canadian provinces like Ontario and B.C.

But B.C. has a government-backed, Torrens-inspired land title system that “guarantees” your title. It’s like the Mercedes of land registration systems. In B.C., you can generally rely on the accuracy of the register in the Land Title Office as to who the owner is and what registrable charges are outstanding. To deal with the possibility of losing title through fraud, a provincial assurance fund pays financial compensation in appropriate cases (not an easy process though).

Before the arrival of title insurance here, the B.C. system worked well for many decades, and is usually considered just fine for everyday, normal transactions.

The occasional title and mortgage fraud cases get a lot of press. But they’re rare. In the last two decades, only some 17 title or mortgage fraud claims have reportedly been paid from B.C.’s assurance fund, out of 16 million real estate transactions processed by the Land Title Office.

And as between innocent defrauded home owner and bank or mortgage lender, where (unbeknownst to the true owner) a fraudster transfers title to an accomplice (who then takes out a mortgage and disappears with the money), the lender now bears the risk of loss.

So is title insurance worth it for you in B.C.?

Banks like it. Recent high-level B.C. court decisions saddling mortgage lenders with the risk of mortgage fraud have given banks and lenders an incentive to get borrowers to opt for a lender’s policy. However, such a policy, though paid by you, only protects the lender.

So if you’re getting a mortgage to finance your home purchase, the bank may allow you to buy a lender’s title insurance policy instead of a new survey, which could be more expensive. (Another alternative is having the bank accept a short-form “protocol” legal opinion – this too would save the survey cost and protect the lender.)

Still, you might want to consider an owner’s policy for yourself (for which you pay a separate premium). In addition to insuring your title to your new property, it would offer benefits, such as covering you in case of previously unknown defects that a new survey would have shown.

As well, title insurance would cover you for other problems you might run into – as a sampler, construction done by the previous owner(s) without proper permits (unauthorized accommodations or other “after-the-fact” improvements come to mind); zoning, land-use or building by-law infractions; and set-back problems. A new survey wouldn’t show most of these problems, which could be costly to fix.

While you, as a buyer, should generally get a new property survey, title insurance may also be worth it. Being an insurance product, it has exclusions. Talk to our lawyers to get a better understanding of it and find out if it’s a useful product for your particular transaction.

 

This column has been written by Janice Mucalov LL.B as part of “You And The Law”. It provides information only and must not be relied on for legal advice. Names of the parties in reported cases have been changed or removed to protect their identity. Lawyer Janice Mucalov is an award-winning legal writer.

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