Tuesday, January 3, 2012

The Real Value of Title Insurance

title insurance

The Real Value of Title Insurance

Ontario Real Estate Source

By Brian Madigan LL.B.

I thought that it might be wise to comment on the value of a title insurance policy.

In this case, Poplawski v. McGrimmon (2009), Anna Poplawski purchased a title insurance policy from Stewart Title. There were serious defects in the property.

The basement flooded and there were septic and well issues, and issues with framing, the roof and the foundation.

Possibly, if full searches had been done, these issue might have been discovered. But, they weren’t. And, that was in part the purpose of the title insurance policy. Save money on the searches and buy title insurance instead.

In this case, Stewart Title paid out the full amount of the title policy, namely $340,000 and initiated the lawsuit for recovery of its losses. It has the right to subrogate, that is, the right to sue in the name of the insured if it pays under the policy.

Here is a brief summary about title insurance made the Master MacLeod in Motions Court:

“Title Insurance
[8]          Title insurance has become increasingly common in Ontario over the past decade or so.
It is now increasingly a standard feature in residential purchases. 
It is marketed as covering both title defects and “off title” searches traditionally completed by lawyers on a real estate purchase.
By purchasing title insurance it may be possible to avoid the cost of a survey or various searches and to in effect “paper over” certain defects. 
I am simplifying of course and the particular coverage in any given case will depend on the wording of the policy in question, the options or endorsements purchased and other factors. 
In any event, this was a Stewart Title “Gold” policy in which both the plaintiff and the lender, First Line Trust, were insured parties. 
Structural problems with the buildings or other improvements on the property are not of course problems with title to the land and the provisions of the policy that are engaged are those that deal with the “off title” searches.
[9]          Title insurance does not cover physical defects in the building as such.
Largely the insurance coverage protects the marketability of the property from defects that would have been revealed by proper searches.
The policy in question does cover “adverse circumstances” that would have been revealed by “a local authority search of the land at the policy date”.
The policy also provides protection from regulatory action such as municipal work orders or demolition orders as a result of defects in the improvements on the property that existed prior to closing. 
It is not necessary to be more precise for present purposes.
The important point is that title insurance is available only indirectly to fund repairs or reconstruction and only under circumstances in which the policy is engaged. 
[10]      Apparently on discovery it was revealed that Stewart Title has advanced the entire face amount of the policy of $340,000.00 to First Line Trust.
Since this is equivalent to the purchase price paid for the property, it would appear this has fully retired the mortgage. 
Even if the house is worthless, the plaintiffs now have the land free and clear of the mortgage debt. 
The claim is for almost double the purchase price and includes consequential damages so the plaintiffs are arguably not made whole by the insurance proceeds. 
More importantly the plaintiffs do not concede that any part of this payment should be a credit against either damages for breach of contract or in tort. 
The important point is that the title insurer has paid out the policy, receipt of those funds has been disclosed, and the insurer is exercising its rights of subrogation.”
If you ever thought of not having title insurance, this case should convince you otherwise. How would the purchaser be able to sustain such a major loss, let alone finance the lawsuit for recovery of compensation?

In addition, the plaintiff in the lawsuit may be able to recover for other losses that were over and above what was covered under the insurance policy.

And, remember, this policy only cost a few hundred dollars!

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888