Should a Buyer accept Title Insurance instead of a Real Property Report?

Posted on 25. Apr, 2009 by Rosellina Giardino in Real Estate

Read my article “What is Title Insurance?” before you read this article.

Most Real Estate Purchase and Sale Agreements contain a clause requiring the Seller to provide the Buyer with a Real Property Report with compliance.

Only a Real Property Reports that reflect the current state of the Property and that is marked with compliance by the municipality will satisfy the requirement of the Purchase and Sale Agreement.

Sometimes, the Seller does not have a current Real Property Report with compliance.  In that case, the Seller may offer to purchase a Title Insurance Policy for the Buyer in lieu of providing the Buyer with a Real Property Report with compliance.  The Seller may do this because it is cheaper to pay for the title insurance,  they are aware of a problem with the property (this may prevent title insurance coverage), or there is not enough time to have a Real Property Report prepared.

Should a Buyer accept Title Insurance instead of a Real Property Report with Compliance?

Of course, this depends on each transaction.  In most situations, I recommend the Buyer insist that the Seller provide them with a Real Property Report with compliance for these reasons:

1.       If you receive a Real Property Report with compliance at the time of purchase you will know what you are getting.  You will know if your fence encroaches on your new neighbour’s property, you will know if your garage is too close to the property line, you will know if a permit has been issued for your deck.

2.       If problems are revealed by the Real Property Report during the transaction, it will be the Seller’s responsibility to fix them.  For example, the Seller will get a permit for their deck, or enter into an encroachment agreement with the municipality or the neighbour.

3.       If you get title insurance instead and problems with the property are revealed at a later date they are now the buyer’s responsibility.  The Buyer may find out that there is an issue with their property and it is now their responsibility to fix. The Buyer can go to their title insurer but the title insurance policy may not cover the Buyer’s loss.

4.       It is very important to read the contents of your title insurance policy and be aware that you are making a claim on an insurance policy and your insurer may decide not to cover your loss.

5.       If the Seller or the Buyer is aware of a deficiency and decided to get title insurance instead of a real property report with compliance, the Buyer may not receive coverage under the title insurance policy.  The title insurer and the Buyer can take legal action against the Seller if there evidence that the Seller was aware of problems with the property.

6.       When it is time to sell the property, the new seller will have to provide the new buyer with a real property report with compliance or pay for the new buyer’s title insurance.

You may also want to read the following articles:

“What is Title Insurance?”

“What is a Real Property Report?”

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Tags: edmonton real estate lawyer, Real Property Report, rpr, Title Insurance