Property owners and lenders often ask their legal professionals why they should be getting a title insurance policy. After all, haven’t they been relying on a title opinion all these years? Why change now?
Many of the risks a title insurance policy protects against are not covered by an opinion. They are out of the control of the legal professional who is opining, and are specifically excluded in the opinion letter. In fact, a recent analysis of our files reveals that over 50% of our commercial title insurance claims are not covered by a legal opinion. And nor should or can they be.
Title insurance has become a key risk management tool for owners, lenders, and their professional advisors. FCT’s commercial policies insure a wide range of property types and risks for which legal opinions are often not otherwise able to cover.
Title insurance allows for reduced due diligence requirements and quicker closings, which ultimately result in time and cost savings to the insured. But the coverage goes much further.
Here are a few examples of some of the benefits enjoyed by owners and lenders with a commercial title insurance policy:
Known defects don’t have to mean unknown delays or lost deals
During a real estate transaction, issues can be uncovered that affect the property or the title to the land. Once uncovered, these issues, or known defects, can often allow anxious purchasers, prudent lawyers, or risk-averse lenders to question and potentially jeopardize a deal. At FCT our experienced underwriters will assess the risk of known defects and can customize coverage to help ensure that the deal closes. As a title insurer, we assume risk on behalf of lenders and purchasers by providing comprehensive coverage to eliminate closing delays. This means you can move on to the next big deal.
Errors by governmental authorities
When a legal professional provides a title opinion, it is based on the assumption that the information received from a governmental authority is, in fact, correct. However, commercial title insurance policies go much further by covering errors in written responses from the government authority that relate to outstanding work orders, deficiency notices, or to the zoning of the land. Governmental authorities almost always include an “errors and omissions excepted” clause in their responses, which makes the coverage by a title insurance policy very valuable in these situations where the response is incorrect.
No-fault insurance versus proving negligence
Having closed a transaction on an opinion letter only, there is heavy reliance by the client, whether a purchaser and/or lender, on the legal professional giving the opinion. Should a problem arise after closing, the client would have to sue the legal professional and prove negligence on the lawyer or notary’s part in order to be compensated for their loss. This could be costly and time-consuming.
With a title insurance policy, the insured simply needs to prove that the defect that exists falls under the coverage of the policy. There is no need to sue anyone or to prove who is at fault. They simply have to make a direct claim to the title insurer.
Duty to defend
A title insurance policy also provides a duty to defend its insured. If there is ever a challenge to a matter covered under the policy, the title insurer is responsible for the payment of all legal costs associated with the defence of the insured and correction of the defect. Typical examples are a claimant asserting a priority over a mortgage or a third party asserting an interest in the land. It is important to note that money spent to defend the insured’s interest does not reduce the amount of insurance available under the policy. Not surprisingly, a substantial amount of claims dollars is related to the duty to defend provision in the policy.
Commercial title insurance is a valuable product for property owners and lenders as it works hand-in-hand with their legal professional’s advice. As trusted legal advisors and the “quarterbacks” on the deals, lawyers and notaries have a good understanding of what title insurance does and does not cover. For example, though a title policy provides survey coverage, it may be prudent to obtain a new survey if the client has plans to expand the buildings or change the use of the land.
Every transaction is unique. A title insurance policy enhances a legal professional’s advice, while also providing the client with the best possible coverage available.
The FCT group of companies, based out of Oakville, Ontario, is a leading provider of real estate technology in Canada, delivering data-driven solutions spanning residential and commercial title insurance, default and recovery, and mortgage processing and valuation services. FCT serves approximately 450 lenders, 43,000 legal professionals and 5,000 recovery professionals, as well as mortgage brokers, real estate agents and builders, nationwide. FCT is a subsidiary of First American Financial Corporation (NYSE: FAF), one of the largest title insurers in the United States with a global presence.
FCT is proud to be certified as a Great Place to Work by The Great Place to Work® Institute and has been named as one of Canada’s Top 50 Best Workplaces for seven consecutive years (2015-2021).