Real Estate Title Fraud, Is Title Insurance the Answer?
We are often asked about real estate fraud and whether or not our clients ought to purchase title insurance for their own properties. Our clients see numerous advertisements and promotions by the title insurance industry emphasizing the fraud protection that a policy can deliver. Obviously, there is no general answer to that question, other than to give the most conservative advice, which is that a residential title insurance policy does provide some fraud protection which an owner does not get from other sources. So, if you are unconcerned about the cost, get your lawyer to do a title search and purchase a title insurance policy.
What is Title Insurance?
Title insurance is a policy of insurance that provides coverage for the title related risks associated with real estate transactions. It is designed to cover the unpredictable or undetectable issues such as forgery, fraud, missing heirs, etc. that can affect rights of ownership. Because it is insurance, a title insurance policy moves the risk associated with title from the home buyer, the lending institution or the lawyer, to the title insurer.
If there is a problem with title that only becomes known after closing, the title insurer may rectify the problem or compensate the title insurance policyholder, provided the type of problem that surfaces is covered by the title insurance policy.
A title insurance policy will contain:
risks or losses the policy will cover;
risks or losses the policy will not cover; and
general terms governing the insurance coverage.
GLOSSARY OF TERMS
Bequeath – To leave or give (property) by a will. To pass (something) on to another; hand down.
Closing – A real estate transaction in which property changes hands. Generally, there is an exchange of money for the title to the land. An essential part of the closing is the registration of the title in the new owner’s name.
Easement – A right or interest in the use of the land of another person which entitles the holder to some use, privilege or benefit, such as to place pole lines, pipe lines or roads thereon.
Encroachment – The presence of an improvement such as a building, wall, fence or other fixture which overlaps onto the property of an adjoining owner.
Marketability – Generally, the problem is unmarketability: a condition in which property cannot be sold because of pending legal issues.
Notary – An official witness. In British Columbia, a notary is authorised to conduct a real estate closing.
Real Property Report – In some provinces, a Real Property Report takes the place of a survey in defining the dimensions and location of a property.
Setback – The minimum distance a house or building must be from lot lines.
Solicitor – A lawyer.
Survey – A measurement and definition of the boundaries of a piece of property as determined by a surveyor.
Title – An official declaration of ownership.
Title Defect – A problem with the title which prevents free and clear ownership. There are many types of defects, including unpaid liens, rights of way, or encroachments from neighbouring properties, to identify a few.
Title Insurance – An insurance policy issued by a company that assumes risk. In this case, the risk is that once title has been transferred to a new owner through a closing process, evidence comes to light that challenges the new owner’s right to clear title.
Title insurance can be residential or commercial. Residential refers to properties occupied by the owner, usually single family homes but also including multiple dwelling units. Commercial refers to properties owned as investments and can include raw land, factories, retail stores, mixed use, apartment buildings, office buildings, warehouses or many other types of property.
Underwrite – To assume an insurance risk, guaranteeing payment in event of loss.
This paper is intended for informational purposes only. Nothing contained herein constitutes legal, financial or other professional advice. Transmission of these materials is not intended to create, and receipt does not constitute, any relationship of any kind between the provider and the recipient. Some of these points may not apply in your area. Different term and conditions may vary from state to state and province to province. All articles, text and photographic material presented here is for the use and pleasure of the recipient only. Download PDF