Since title insurance was introduced in Canada in the early 1990s, it has been marketed as an inexpensive replacement for a property survey. But land surveyors and some lawyers say that consumers in a real estate transaction are putting themselves at risk by not getting an up-to-date survey, even if they have title insurance.
Property surveys are included in a document called a Real Property Survey (RPR), which is supplied by a licensed member of the provincial land surveyors' association. Last year, a report prepared for the Alberta Land Surveyor's Association by legal firm Miller Thomson said, "Using title insurance as a replacement for an RPR would be like purchasing theft insurance and then leaving the car door unlocked with the keys under the floor mat -- your car may not be stolen, but you increase the likelihood by acting in a careless manner. It does not seem to make sense for a purchaser of property to willingly not investigate the risks inherent to the property simply because there is title insurance."
Surveyors say that title insurance does not provide any information about a property to an owner or lender. "Any problems that may have been disclosed by a survey are passed on to the uninformed purchaser or lender to be resolved by them at some later date."
Critics also say that although title insurance may cover problems that arise in ownership, straightening out the mess may take a long time if the insurance company has a problem with the claim or if it goes to court. Without a survey, if a purchaser uncovers title problems before closing, they may back out of the deal or not close on time. When a survey is performed, any potential issues are known up-front and can be dealt with.
The Association of Ontario Land Surveyors says that title insurance is still used in much of the United States because of "the continued poor condition of deed registry systems in many states" and because of "the uneven manner in which American lawyers and surveyors are licensed and regulated from state to state."
It says the situation is different in Canada, where "the orderly opening of the land for development, and the subsequent evolution of our Land Registry systems, have provided security of tenure through reliable documentation of land ownership and of interest in land."
In Canada, title insurance generally costs only a couple of hundred dollars. Surveys are usually much more than that, and can cost in the thousands of dollars depending on the property.
While title mistakes are not common, recently some major property issues have been reported. Toronto real estate lawyer and writer Bob Aaron wrote about a case where one owner originally owned houses on both sides of a street. When he sold one of them, the house on the other side was mistakenly deeded to the new owners. "Had there been a proper survey, the problem might never have arisen, or at least it could have been detected and corrected much earlier," says Aaron.
The Alberta Land Surveyors Association reports that in another case, a home's driveway had been expropriated and it belonged to the government -- a fact that was not included in old survey documents. It says that eventually, insurance paid for a new driveway to be constructed, but ornamental and shade trees had to be removed to accommodate it. The real estate agent, who had failed to advise the purchaser to make the offer conditional on completion of a property survey, was fined by the provincial real estate council.
The Ontario association says the Surveyors Real Property Report will show if there are any easements for utilities or rights-of-way on the property, and whether fences, trees, buildings, gardens, embankments, driveways, walkways, swimming pools, house additions and other property improvements are actually on your property -- or if anything encroaches from your neighbour's property. It also tells you whether your deed describes your property accurately.
"Title insurance is not a replacement for a surveyor's opinion," says the Association of Ontario Land Surveyors. "In fact, most title insurance policies do not cover items such as fences or retaining walls encroaching onto you or your neighbour's property … ."
The association says that title insurance does have a place in real estate transactions, "especially those involving complicated land assemblies and financing. It should be viewed as complementary to the traditional process of investigation of quality and extent of title rather than as an alternative."
Title insurance is also becoming more popular for existing homeowners, as the problem of mortgage fraud continues to grow. Last week, the Toronto Star reported that an actress who rented out her furnished home was a victim of mortgage fraud. The tenants, using documents they found in the home, created a new identity in the homeowner's name and listed the property for sale with a real estate agent. The house was sold to a fictitious person and a $250,000 mortgage was taken out. The renters then disappeared with the money.
A lawyer told The Star that landlords should protect themselves with title insurance, and make sure they do not leave personal papers on the premises.