July 1, 2006
Lawyers play key role in buyer protection
Paperwork is just small part of job
Title insurance now standard
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Many Ontarians have jumped into the busy real estate market without fully
appreciating the legal dimensions of homebuying or the critical role that a real
estate lawyer plays in protecting them.
According to new research commissioned by TitlePLUS insurance, only 10
per cent of recent homebuyers saw their lawyer's role as an adviser on matters
such as mortgage and title issues.
TitlePLUS is a leading provider of title insurance to homeowners.
It commissioned Decima Research to conduct the study at the end of May.
The research revealed that 98 per cent of recent Ontario homebuyers
worked with a real estate lawyer, but most saw the lawyer's role as strictly
transactional creating paper without giving advice.
Just half (51 per cent) recalled purchasing title insurance, even though
statistics show it is now a standard part of most home purchases.
Only 1 per cent of respondents appreciated that a real estate lawyer can
help a new homeowner save money at the time of closing and in the future. At the
same time, 62 per cent stated that the most important reason for using a lawyer
was that he or she takes care of all the complicated details.
Kathleen Waters is an experienced real estate lawyer and vice-president
of TitlePLUS, the only Canadian-owned insurer.
In releasing the study results, Waters explained, "Homebuyers put a great
deal of time and energy into finding their dream home. Real estate lawyers put
the same careful attention into investigating the legal issues related to the
property and closing the sale."
"That's where your real estate lawyer becomes an invaluable resource: He
or she navigates you through the major legal implications of home purchase, and
can help prevent a dream home from turning into a nightmare."
For most Canadians, a home is usually their single largest financial
investment, and as a result, it represents the greatest potential financial
risk.
Although real estate lawyers manage the necessary paperwork, they also
protect their clients' interests by anticipating potential hazards and arranging
title insurance to protect them.
Homebuyers generally are not aware that the greatest risks in the
transaction, and the most post-closing problems, often cluster around issues
other than title.
In my experience, the most frequent problem issues in the purchase of a
home are arrears in utilities or tax payments. Building code problems can be
more serious but are not quite as common as unpaid taxes.
Typical building code issues that give rise to title insurance claims
revolve around repairs, renovations or additions to the home that were completed
without a permit and don't meet code or zoning bylaw requirements.
Less-common but more devastating problems include: finding that a
building has been ruled unsafe by building inspectors, becoming involved in a
boundary dispute with neighbours, or a title dispute with previous owners, or
learning that the lot was illegally created and the owner's deed is void.
Other problems covered by title insurance include property features such
as easements or rights-of-way that were not revealed at the time of purchase,
and even mortgage and title fraud after the closing.
In the condominium field, title insurance can cover problems such as:
receiving title to the wrong unit, closing without getting title to a locker or
parking space, undisclosed special assessments, or errors in the building's
status certificate.
Identity theft has also become a new source of title problems. Typically,
a criminal masquerades as the owner and takes out a mortgage on a home using the
real owner's name.
The criminal and the money disappear, leaving the real homeowner with the
risk of being evicted and the headache of trying to remove the bogus mortgage
from title.
Increasingly, title insurance companies are having to provide the
financial resources to help sort out the mess.
I'm often asked to explain what title insurance is. I usually reply it is
a homebuyer's security blanket, which provides financial protection against
legal-related problems affecting a property and the types of risks just
mentioned.
It also provides compensation for losses suffered from title issues
related to the ownership status of the home.
Title insurance in Ontario can only be purchased through real estate
lawyers.
The average home policy costs about $200 in a one-time premium for as
long as the owners and their heirs own the home.
The lawyer who arranges the policy is prohibited from receiving a
commission.
There are no deductibles and no annual premiums, yet, according to the
TitlePLUS study, 48 per cent of recent Ontario homebuyers could not recall
buying the policy.
I can't think of any other type of insurance where the person arranging
it receives no commission, there is one premium for lifetime, and there is no
deductible on claims.
TitlePLUS has created a free Real Simple Real Estate Guide to educate
homebuyers on the role of a real estate lawyer and the key issues around title.
It also includes financial calculators, a glossary of terms and a
locate-a-lawyer feature.
The Guide is available at http://www.titleplus.ca/RSREG/default.asp.
Bob Aaron is a Toronto real estate lawyer. He can be reached by email at bob@aaron.ca, phone 416-364-9366 or fax 416-364-3818.
Visit the Toronto Star column archives at http://www.aaron.ca/columns for articles on this and other topics or his main webpage at www.aaron.ca.
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