I strongly recommend title insurance to all my clients who are purchasing a home. Almost every real estate transaction I do now is title insured.
You should know that – Lawyers are responsible for ensuring the property is transferred to you without any financial encumbrances registered on title (liens, caveats, mortgages that you are not responsible for) but there are things that we don’t typically check for – like building and development permits for work inside the property including renovations, lot grading, work orders or stop orders.
Here are is an example of what title insurance has covered:
Regarding Gap Coverage – Intervening Registration/Financial Interest on Title – Example provided by First Canadian Title Insurance
In Lewis and Dayo v. FCT, a home owner sued the title insurance company for coverage when a mortgage was registered on their property title just before closing.
The lender policy was purchased for $179 but the homeowner declined the $50 homeowner policy.
Shortly after closing, a claim was made to FCT regarding a gap registration issue in the amount of $21,000, which had priority to the transfer and mortgage. What is important to note is that FCT’s lender’s coverage can only be invoked when a loan goes into default and the lender suffers a loss as a result. Only then does the lender have a viable claim. In this instance, the mortgage was still in good standing and therefore the lender had not suffered a loss, meaning it had no claim to make under its policy of title insurance. The claim was denied and the uninsured homeowners were left with the responsibility for clearing the $21,000 from their title. The homeowners sued FCT, seeking coverage for themselves under their mortgage lender’s policy. Had the homeowners purchased the additional homeowner policy when it was offered, they would have been covered and FCT would have paid the $21,000 claim on their behalf. Unfortunately, without a policy in place, the homeowners did “not have the benefits of any of the coverages associated with the policy including registration gap …” and as a result, the Court ruled in FCT’s favour.
Explanation of Gap Coverage: Items are registered at the Land Titles Office in order of receipt. So if I check your property title and it is clear of any financial encumbrances and then I send the title to be registered in your name, but in the meantime someone can submit a mortgage or lien to be registered on the title that is received before the land title is registered to your name. This mortgage or lien submitted just before the land title is transferred, will end up being registered on your title! Title Insurance can protect you if this happens.
No building permit for deck and for finished basement – Example provided by First Canadian Title insurance
“Insured homeowners received a letter from the city advising them that their deck, including an addition and a roof over the deck, as well as the beautifully finished basement in their recently purchased home, was constructed without building permits. As a result, the city demanded that the proper building permits be obtained for the basement, and that the deck, including the addition and roof, must be removed. The cost to comply with the city’s requirements was over $500,000! Fortunately for the homeowners they had a title insurance policy from FCT which insures against loss related to enforced removal or remediation due to lack of building permits. As a result, they were not out of pocket for any of the costs associated with complying with the city’s order”
No permits for electrical and plumbing done as part of a renovation
“When the pipes froze in Tim and Brittany Gietz’s Winnipeg house last winter, they thought they had a simple plumbing matter on their hands. However, upon further inspection, it was discovered that a previous owner of their home had carried out extensive interior renovations without obtaining permits from the City of Winnipeg, and that these had not been carried out to the correct standards. Plumbing, electrical and structural work were all ordered by the City to be taken out and redone, at a cost of more than $100,000. Because the Gietzes had title insurance, all these costs were covered by FCT, who also ensured that the issues were rectified, and the house was inspected and fully approved by the City’s building department. The Gietzes were also spared the arduous process of having to sue their vendors and proving their liability for the incurred costs, thanks to their homeowner policy. (FCT Advisor v.6, May 2015)
After moving in, neighbor builds something on your property
The typical situation we see is where the neighbour has built a shed, garage or a driveway after the policy date that encroaches onto our insured’s property. Covered Title Risk #29 of the homeowner policy is one of the matters that extends coverage post policy. Essentially, it states that we will provide coverage if after the Policy Date someone else builds a structure which encroaches onto the insured’s land. The usual resolution of these claims involves paying legal fees to have the encroaching structure removed or to negotiate a mutually satisfactory resolution to the issue. The benefits of FCT’s involvement in these matters spans further than just the financial impact. Having an experienced third party like FCT handle these issues provides a greater chance of allowing the neighbours to maintain a good relationship. We are very familiar with these situations and more importantly we are sensitive to how these types of claims need to be handled. (FCT Advisor, v.6)
Insufficient access to property and error on survey
Our insureds purchased a vacant lot for the purpose of building a home. The lot was triangular in shape with one corner of the triangle fronting onto the road. This was the only access point to the lot. Attached to the offer of purchase was an old survey showing that the frontage onto the road was a little more than 14 feet. Prior to closing, the insureds verified that the 14-foot frontage was permitted by the zoning bylaw. When applying for a building permit, the insureds obtained an up-to-date survey which disclosed that the actual frontage onto the road was only two feet. The old survey attached to the offer to purchase was incorrect, and the error was confirmed by two independent surveyors. Without proper access, the insureds’ plan for building their home could not go forward as planned. They now had a useless, inaccessible piece of land. FCT made attempts on behalf of the insureds to purchase strips of land from the adjoining landowners in order to increase the frontage. Unfortunately, due to the municipality’s conditions for the severance, it was not a viable solution. As a result, FCT paid out the full policy amount and took title to the property. (FCT Advisor v.2)
Here are some examples of where my own clients have made a claim to title insurance and received coverage:
October 2016 – No Deck Permit Discovered at time of House Sale
When my clients purchased their home over 5 years ago, they agreed to complete the purchase without a Real Property Report with compliance (this would have shown whether their deck had a permit or not). They purchased a title insurance policy. Now they sold their house. Their buyer insisted on a Real Property Report with compliance. The Report was received 1 day before the closing and it showed there was no permit for the deck. A claim was made to title insurance who resolved the issue with the buyer and the sale completed on time with no cost to the seller. Potential savings for the seller – $5000.00
August 2016 – Gap Coverage – Lien on title
This is an example of gap coverage. My client purchased a house. Title was sent to be registered to the buyers name and the seller was paid the purchase price. Between the period of the title being sent to be registered and the actual date of registration (the “gap”), a lien was registered on the property title. The seller had hired someone to do work on the property and had not paid them so the company registered a lien on the title. A claim was made to title insurance and title insurance paid the lien holder the amount owing so that the lien could be removed from the buyer’s property title. Savings to the buyer – $7000 plus
April 2015 – Purchase of Condo/Special Assessment not disclosed by condo
Investor client purchased a condo unit. On closing I received an estoppel certificate from the seller’s lawyer (prepared by the condo property manager) confirming there were no special assessments. Within 1 month of closing, the purchaser received a letter from the property manager saying that there was indeed a special assessment assessed before he purchased the property and that it was outstanding. There was an error on the estoppel certificate provided Instead of pursuing this amount from the seller (as in the case the seller was responsible for payment of it) or entering into a dispute with the property manager as they had issued an erroneous certificate, the purchaser made a successful claim through title insurance and received the full amount of the assessment. Cost of title insurance $150.00 – Cost of assessment – $5500.00
2017 – Gap coverage – Lien on Title
This is an example of gap coverage. My client purchased a house. Title was sent to be registered to the buyers name and the seller was paid the purchase price. Between the period of the title being sent to be registered and the actual date of registration (the “gap”), a lien was registered on the property title. The seller had financed the purchase and installation of a furnace shortly before selling the property. The furnace/leasing company registered a lien on the title. A claim was made to title insurance and title insurance paid the lien holder the amount owing so that the lien could be removed from the buyer’s property title. Savings to the buyer – $10,000.00 plus