For most people, the purchase of their home is the largest transaction they will ever make. Thus, it is crucial for a home purchaser to get the property that they bargained for: good title, and free and clear of any encumbrances except the ones that the purchaser consents to. However, some title defects may be undiscovered before closing and some title defects may arise after closing. It is always a safe bet to obtain title insurance to indemnify the damages as a result of title defects. One thing a lot of people may not be aware is that title insurance does not repair the title defect, it only compensates the home owner for the actual monetary losses as a result of the defect.
Some clients may find title insurance costly and contemplate solely relying on the real estate lawyer’s opinion, however, this move can be highly risky for them. If the title defect is discovered down the road, the client has a claim against the lawyer (which will be covered by the lawyer’s errors and omission insurance), only if the client can prove that the cause of loss is within the parameter of the retainer and the lawyer acted negligently. In addition, the lawyer can only give opinion on the title condition as of the point of closing. I’ve come across some clients who became victims of title fraud after they took possession of the home. In this case, the occurrence of fraud is out of control of lawyer, thus, it is unlikely that the client has any claim against the lawyer who gave opinion on the title. Then the client will have to look at other options such as Title Assurance Funds or potentially bear the consequence alone. Given the foregoing reasons, a lot of law firms would decline representing the client if the client refuses obtaining title insurance due to the potential high risks.
Apart from title fraud, what other coverages does title insurance provide? Generally, an owner’s policy provides coverage for the following losses: any title defect and charge, lien, or encumbrance on the title, unmarketability of the title, lack of access to and from the land. Residential policies may also insure the following risks if the risk is not known to the buyer before closing: zoning, building and use restrictions, right of occupancy restrictions, unrecorded construction liens. If a lawyer specifically requests coverage over a certain defect, the insurer may choose to insure over the issue if the defect is low risk. The policy also contains some exceptions such as environmental claims, aboriginal land claims and property-specific exceptions.
A real estate lawyer will review the policy with the purchaser and help purchaser become aware of the face amount, limitations and exceptions of the policy. In addition, the lawyer will advise whether the purchaser should have more than one policy and advise about the future conduct that might cause a lapse or termination of the coverage.
On a final note, a real estate lawyer is prohibited from receiving any referral fees from recommending an insurer over the other and must disclose to the client that no commission or fee is being furnished by the insurer. So, don’t fret over this “extra” amount of charge. It is for your protection and your lawyer has your best interest in mind. We have experienced Real Estate Lawyers at MEHDI AU LLP to walk you through purchase of your dream home.
Disclaimer: Use of this site and sending or receiving information through it does not establish a solicitor / client relationship. The views expressed and the content provided on this blog is for non-profit educational purposes. It is not, and is not intended to be, legal advice on any specific set of facts. The use of this website does not create a solicitor-client (attorney-client) relationship. If you require legal advice, you should contact a lawyer directly.Back