Should a Buyer accept Title Insurance in lieu of an RPR?

Before reading this article you may want to read:

“What is Title Insurance?”

“What is a Real Property Report?”

Most Real Estate Purchase and Sale Agreements contain a clause requiring the Seller to provide the Buyer with a current Real Property Report with evidence of compliance with municipal zoning laws and bylaws municipality (for houses or bare land condominiums only).

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 evidence compliance. The Seller may do this because:

it is less expensive to pay for the buyer’s title insurance instead of a new RPR with compliance; or

the seller is a aware of an issue that may be revealed on the RPR and therefore don’t want to provide one (this may limit title insurance coverage); or

there is not enough time to have a Real Property Report with compliance prepared prior to the Closing Date.

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

Of course, this depends on each transaction.

Here are some reasons you may want to receive a Real Property Report with compliance:

1. If you receive a Real Property Report with compliance at the time of purchase you will know what you are getting. For example, you will know if your fence encroaches on municipal 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, it will be the Seller’s responsibility to address them as per the purchase and sale agreement. For example, the Seller will get a permit for their deck, or enter into an encroachment agreement with the municipality.
3. If you get title insurance instead and problems with the property are revealed at a later date, you will now have to deal with the problem. You can make a claim under the policy but the claim may be denied. For instance there is limited coverage with respect to fence issues.
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 you are 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.
6. When it is time to sell the property, you will have to provide your buyer with a real property report with compliance or negotiate with them to accept title insurance in lieu. If the buyer insists on the real property report you will have to pay the costs to obtain one and deal with any issues that are now revealed.
7. Remember title insurance does not cover something you know about or agreed to accept.

Here are some reasons you may agree to accept title insurance in lieu of a Real Property Report with compliance:

1. You intend to tear down the property;
2. Title Insurance may cover a loss related to compliance issue that would have been revealed by a Real Property Report with municipal compliance. Let’s say 6 months after you move in, you decide to get a Real Property Report with municipal compliance on your own. At this time you discover that your garage does not have a permit and the municipality requires you to get one. Title insurance will likely cover your costs related to this. So instead of discovering this issue prior to the closing and having to deal with the seller to resolve it (which sometimes continues post closing and has the potential for disputes), the title insurance company will handle the issue for you.
3. Even if you get a Report, there may be an error on it. Title Insurance may cover any errors on a Real Property Report that are later revealed which you are ordered to correct.
4. The seller won’t sell you the property unless you agree.

Even if the seller provides you with a Real Property Report with evidence of municipal compliance, I strongly recommend that a home owner also get title insurance coverage. If you are told that you don’t need title insurance because you have a real property report with compliance – you were misinformed. Title Insurance covers issues that are not shown on the Real Property Report such as losses related to municipal issues such as outstanding work orders, permits, tax arrears, builder’s liens, and fraud. My office recommends title insurance for every transaction and if you choose not to get it you will be asked to sign a waiver in that regard. I have had too many clients call me with issues post closing that had they had title insurance, they would have coverage for their loss.