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The ‘duty’ of title insurance

Eric Haslett | The Title Page | 2015-09-15

Eric Haslett, FCT“Duty to defend” is a valuable benefit included in every title insurance policy, be it loan, owner, residential or commercial. Yet many real estate professionals and their clients may not know how it works or what it covers.

In this post, we’ll explore why this important component of commercial coverage can lead to substantial cost savings and more effective conflict resolution.

Today, most lawyers and notaries clearly see the value of title insurance and understand the protection it affords their clients. They understand it’s simply not possible to cover all issues through due diligence efforts or their opinion on title, such as CRA super priority lien claims and errors by governmental offices.

In addition, unforeseeable events can always crop up, affecting either an owner or a lender, or both. And when they do, they can be expensive and stressful to deal with. Purchasing title insurance provides a key benefit: peace of mind.

What is duty to defend?

Duty to defend essentially means if anyone raises a challenge to something that’s covered under the policy, it’s the title insurer’s responsibility to pay all the legal costs and expenses to defend the insured’s interest in the land.

This can happen in many situations, including when there’s an intentionally difficult or opportunistic neighbour who either has a legitimate claim or is trying to pressure the other party into some sort of concession. Below we’ll examine several real-life examples where the duty to defend benefit was triggered.

He said, she said

After a transfer of a property, a Certificate of Pending Litigation (CPL) was registered by a woman claiming her spouse, who was the controlling shareholder of the registered owner of the property, didn’t have the authority to sell the property.

A CPL effectively freezes any further activity on the property by asserting someone else has a claim to it. In doing so, any future financing or sale of the property would be hindered. In this case, under the duty to defend, the policyholder’s legal defence costs were paid and the CPL was lifted from the title.

Constructing a solution

There have been numerous claims where a construction lien claimant has registered a notice of lien on a property and has claimed priority over an existing conventional mortgage. They don’t care that the mortgage has been on the property for years and has priority over the lien.

The lien claimant will regularly name the lender on the title in the action, and usually for one purpose — to attempt to leverage the lender’s influence over the owner to settle the lien claim, which in turn triggers the duty to defend.

Stop stalling

Another common example of when the duty to defend arises (within the context of a loan) is when the registered owner claims he/she has no knowledge of the mortgage registered on the property, when in fact they do.

This often arises when a borrower, after being served with a notice of sale under power of sale or foreclosure proceedings, claims he/she didn’t sign the mortgage or didn’t understand what they were signing.

By essentially claiming the mortgage is invalid, they can halt proceedings — hopefully to an outcome in their favour. In this situation the duty to defend would be invoked and the title insurer would defend the lender’s interest in the land so that the enforcement process could proceed.

The importance of understanding coverage

As you can see, there’s more to title insurance than many know. By understanding the full extent of the coverage available, the easier it is to maximize its benefits for all involved. Watch for additional posts where we delve more deeply into the benefits and uses of this essential product.

Do you want to know more and just can’t wait until the next post? Feel free to email your questions and comments. Perhaps we can even spotlight them in an upcoming column.

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About the Author ()

As Vice-President, National Accounts, Commercial Solutions, Eric is responsible for building FCT’s commercial business by fostering key relationships with national lenders and major law firms. Relying on his extensive experience and niche expertise, Eric’s goal is to promote education and best practices throughout the commercial real estate marketplace. Eric earned his bachelor of commerce from McMaster University in 1990 and later graduated from the Faculty of Law at The University of Western Ontario. He was called to the Ontario Bar in 1997.

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