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The protections of title insurance

Buy a string of pearls from a hustler on a downtown street, and you know it's probably hot. But what are the chances someone will stop you a block later and tell you that not only are you holding a stolen necklace, you're now responsible for all money owing on it?

Here's a more daunting thought: Imagine sinking your life's earnings into a house only to learn that the seller never had the right to sell it to you, and now you're responsible for all his missed loan payments.

That's just one of the scenarios from which title insurance can rescue you.

In a nutshell, title insurance protects the purchaser of the policy -- whether a lender or homeowner -- from disputes over property ownership. An institution in the U.S. for more than a hundred years, it's just taking root in Canada, thanks largely to an increase in identity theft, fraud and liens levelled as a result of previous owners neglecting to pay their taxes.

In fact, Canadian demand for title insurance, especially in Eastern Canada, has grown 5,000-fold since 1991, according to First Canadian Title, of Oakville, Ont., which sells title insurance policies.

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Insure against back taxes and liens
There are seven areas of coverage for which title insurance provides. They are:

  • Fraud and identity theft, in case a perpetrator steals your identification and obtains a mortgage against your property in your name.
  • Survey or title problems, such as encroachments or setback violations.
  • Tax arrears. Even if it was a previous owner who neglected to pay taxes, the municipality is allowed to put a lien on the property that is now yours.
  • Building permit coverage. When you discover that a building permit wasn't issued for improvements on the house you just bought, you're responsible for removing or repairing the addition or renovation.
  • Construction liens. If there is an outstanding amount of money against an addition or renovation, the builder is entitled to put a lien against the property. As the current owner, you will be responsible for payment, even if the work was done prior to your purchasing the property.
  • Work orders. They are not normally registered on title, so are easily overlooked.
  • Registration gap coverage. Should a problem be discovered between the time you submit transfers of land and mortgage to the land titles office for registration and the time they are registered, you can still close the deal on time and not be forced to pay interest to the seller.

Although newspapers these days are full of identity theft stories, the most common title insurance claims are for tax arrears and violations of building permits or work orders, says Karen Decker, vice-president of underwriting at Stewart Title Guaranty Company in Toronto.

Low cost, high value
The good news is title insurance is a relatively inexpensive indemnity -- on average about $200 for a $500,000 house, good for as long as you or your heirs own the house.

Most Canadian real estate buyers pay anywhere from $150 to $1,000 (depending on the location) for a survey that establishes whether the seller has the right to sell and collect the full payment.

But given that lending institutions are happy to accept title insurance in lieu of a survey, potential savings can be substantial from the get-go. In other words, it's possible to skip the survey process and simply buy insurance instead.

But is title insurance really necessary? It is if you want to protect yourself from fraud, which is on the rise, thanks to the Internet, bank cards and other technological advances. According to Susan Leslie, vice-president of claims and underwriting at First Canadian Title, the past year saw the number of dollars her firm paid out for fraud cases double, from 30 percent to 60 percent.

"It's a matter of educating people," she says. "Title insurance offers enhanced protection to the consumer. It can save a lot of heartache, time and dollars spent in legal fees."

But Brian Brown, a land surveyor in Whistler, B.C., says in his province, the traditional practice of ordering a property survey suffices, especially for construction lien and building permit coverage issues.

"Because we are a young province, we have learned from other jurisdictions to set up the best land title system in the world," he says. "A survey will ensure the structure on the property fits into the allowable envelope, so that the building authority doesn't come along and make you move your deck, for example. The survey does this and guarantees it."

But there's that nagging possibility of fraud. While all provincial governments guarantee mortgages through a setup called Land Title Assurance Funds, making a claim through that process can be onerous and time consuming. Property owners stung by fraud won't see their provincial government payout for about three years. By contrast, those with title insurance will receive their cheque within weeks.

"Title insurance is taking off," says Patrick Burke, a B.C. lawyer. "It's cheap, it's foolproof and for the protection it gives you, it makes sense."

Pam Withers is a business journalist, business-book editor and author of several best-selling teen novels. Julie Burtinshaw is a researcher and novelist.

-- Posted: Sept. 20, 2004
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