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Lawyers' Opposition to Title Insurance

By Brian Madigan

Commercial Real Estate Agent with RE/MAX West Realty Inc., Brokerage (Toronto)

November 24, 2009 11:19 AM

Lawyers' Opposition to Title Insurance

By Brian Madigan LL.B.

For years, lawyers were strongly opposed to title insurance. In common law jurisdictions, the normal conveyancing practice was to obtain a title opinion.

Sure, you could buy a property yourself and accept all associated risks, but, if you wanted a mortgage, you had to obtain a title opinion from a solicitor. That was standard mortgage practice.

That basically left most buyers without a choice: a title opinion or nothing. In addition, the solicitor would provide a number of ancillary services in connection with the transaction.

Gradually, in the United States title insurance replaced legal opinions, and title companies replaced lawyers in the conveyancing transaction. The two went hand in hand.

In the mid 1990's the issue became quite topical in Ontario. The lawyers banded together to prevent title insurance from getting much of a foothold. Numerous arguments were presented pointing out the shortcomings of the insurance model generally, and title insurance policies in particular.

Eventually, the Law Society of Upper Canada, the governing body for solicitors developed its own title insurance policy. With the endorsement of the Law Society, title insurance became popular. Additionally, if you bought the policy, you did not need not sue your own lawyer. That is always problematic at the best of times, and who wants to sue their own lawyer?

This seemed to be the missing ingredient. Lawyers rapidly adopted the new system, since they were effectively "protected" as well.

Furthermore, they were still involved in the conveyancing transaction, and in large measure this kept the title companies at bay.

By 1997, title insurance had become the norm. It was acceptable mortage practice. Policies are now sold through "agents", being the lawyers themselves. Policies are available from a number of different insurers, and policy provisions vary from company to company. While there is a standard automobile policy, there is no standard title insurance policy. It is important to cover the risks that you want covered and secure the appropriate conditions.

There are still a few holdouts in the legal community, however, they are now few and far between.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

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R. Greg Osmond

Sutton Group-Capital Realty Ltd. - St Johns, NL

MBA, Red Maple Realty

So lawyers were holding out because it didn't protect them and it seems like they thought it would make them unnecessary to the real estate transaction. But when the provisions of the insurance gave protection to the lawyers and it didn't remove them from the transaction they embraced it.

Now that the lawyers are agents, do they receive any commission from the title insurance companies when a client buys title insurance or does 100% of the premium go to the title insurance company?

Nov 24, 2009 11:50 AM

Brian Madigan

RE/MAX West Realty Inc., Brokerage (Toronto) - Toronto, ON

LL.B., Broker

Greg,

This post was for you, but since I knew the answer was going to be a little longer, I posted it as a blog.

Generally, the lawyers receive a commission.

However, since they are "agents", there is a duty to account for the commission, so that is offered to the client as a credit, or in some cases the commission is waived at source. This means the client buys it net of commission. There's less paperwork. Nothing paid, nothing accounted for, nothing credited and nothing remitted.

I believe the real opposition was against title companies, not title insurance. So, once the lawyers ensured the continuance of their role, they were happy to go along with the insurance.

Brian

Nov 24, 2009 12:03 PM

Charles Perkins

Charles G. Perkins, CPA - Burien, WA

Fascinating history on land conveyance and passing title. Did lawyers guarantee clear title when they did their opinions? Title insurance certainly gives more assurance to the buyer than a legal opinion that might have caveats.

Nov 24, 2009 12:37 PM

R. Greg Osmond

Sutton Group-Capital Realty Ltd. - St Johns, NL

MBA, Red Maple Realty

Brian, Thanks for posting this for me. No one has ever written a blog especially for me before. I am somehow honoured. As well, I am happy to provide new topics for your blog. ;)

The explanation was excellent. Thanks.

Nov 24, 2009 01:00 PM

Brian Madigan

RE/MAX West Realty Inc., Brokerage (Toronto) - Toronto, ON

LL.B., Broker

Charles,

If the title had defects, the title opinion noted those defects. In most cases, the title insurance policy follows a legal opinion. It's not just guesswork.

So, if there's a defect, than that particular defect is noted in the title insurance policy as an "exception".

Greg,

No problem. Since I post 10 to 15 articles per week, my problem is that I can run out of questions and topics. So, it's always fun to answer someone's question, because I know that at least one person will be interested in the answer.

And, arising out of the whole title insurance issue, I'll write another article about why sometimes a title opinion is preferred over a title insurance policy.

Brian

Nov 24, 2009 01:17 PM

FN LN

Toronto, ON

Brian - I never knew that the Law Society policy does not allow policy owners to sue the lawyer.

Here's a post idea - What is your opinion about obtaining both a full blown legal opinion as well as title insurance? Both have some advantages and disadvantages but it seems to me that it is best to have both to have the best coverage and I don't think it that costs that much more (perhaps a couple hundred dollars). I prefer dealing with unpaid property taxes and other easy to cleanup issues before title changes rather than going through title insurance afterwards.

Nov 24, 2009 04:24 PM

Matt Listro

National Credit Fixers - Matt Listro - Vernon, CT

Your Credit Repair Expert

Hi Brian: What a fascinating post - thanks for sharing it with us!

Nov 25, 2009 07:49 AM

Anonymous

Lisa M. Weinstein

One inaccuracy needs to be pointed out regarding this posting. First, I should note that I am a lawyer and Director, National Underwriting Policy, TitlePLUS at Lawyers' Professional Indemnity Company (LAWPRO) and we sell TitlePLUS title insurance throughout Canada. (LAWPRO is wholly owned by the Law Society in Ontario.)

The point was made in the posting that if you buy a title insurance policy, you are prevented from suing your lawyer. This is not correct. I can say with certainty that the TitlePLUS policy does not have any such provision and I am not aware of any such provision in any other title insurance policy offered in Canada.

An insured homeowner under a title insurance policy is not PREVENTED from suing their lawyer. It is simply UNNECESSARY in many cases because losses are covered by the title insurance policy. In addition to protecting you from real estate-related problems, the TitlePLUS policy also includes coverage for losses resulting from a lawyer's negligent errors. This additional coverage means that you will likely NEVER NEED to sue your lawyer.

Nov 30, 2009 01:48 AM

Brian Madigan

RE/MAX West Realty Inc., Brokerage (Toronto) - Toronto, ON

LL.B., Broker

Lisa,

Thank you for your valuable contribution to this discussion. I had it on "good authority" from a lawyer who should have been familiar with this matter, that the policy contained that provision. Thanks for the comment. The distinction is an important one.

For the information of readers looking at the post subsequently, the post will be amended to reflect the correction. The original post was "in error" on the point raised by Lisa.

Brian

Nov 30, 2009 02:46 AM