Solicitor's Opinion: The Gold Standard
By Brian Madigan LL.B.
When it comes to conveyancing practice, the solicitor's opinion is the gold standard, not a title insurance policy.
Let's have a look at the policy and determine where it fits in.
First, it is an insurance policy. Historically, insurance has been against the law because it is akin to gambling, or drawing lots. Many ancient societies, and many modern ones too have made gambling a crime.
In the 17th century, the basic principles of insurance were accepted. In fact, they generally seemed to be beneficial to society. If someone's house burnt down, the cost of replacement was borne by the neighbours. The neighbours arrived to put out the fire, probably too late, cleared the debris the following day, and housed the victims until their house could be rebuilt. Pools of capital were formed to help, in the case of need. Gradually, this organized pool of capital funds led to insurance companies.
Insurance contracts were developed, and there had to be a specific exemption from the existing statutes governing crimes and gaming.
Remember that gaming was gambling, "playing the odds" as it were, which had led to fraud over the centuries. Trickery and slight of hand were illegal, as were bets and taking odds. Consequently, even in the modern society of 17th century England, insurance companies had a great deal of difficulty being accepted as legitimate. As part of their marketing, advertising and promotion campaign for "acceptability" they would often host or sponsor local fire brigades, the forerunners of fire departments. In effect, charity and altruism were the cover for their otherwise illegal activities. In some cases, that's still true today!
So, what is a title insurance policy? It is a not really a guarantee of title, which it is often thought to be. It is a simple insurance contract. If something goes wrong, the company will help with the loss. They don't say, there will be no loss, they only say that they will help you out if there is one.
If you are looking for a guarantee, then look to the solicitor's opinion. That's basically as close as you're going to get.
Let's look at the issue of unpaid taxes, unpaid utilities and unpaid executions.
A lawyer will conduct a search in respect to these items. There will be a clear answer, one way or the other. They are paid, or they're not paid. It is a simple matter, and a fact that can be determined.
A title insurance company on the other hand will "play the odds". Most of the time, the taxes are paid, there are no utility arrears and there are no executions effecting the title. Looking at the particular transaction at hand they see that:
1) the vendor said there were no such arrears, and
2) the vendor agreed to pay, should there be any such arrears.
So, they "take a chance". They say that they will assume the risk when it comes to taxes, utilities and executions. However, the buyer will have to buy a policy and pay the premium.
In order to induce the buyer to opt for this "solution", the insurer will state that no taxes need be checked, no utilities need be checked and no executions need be checked.
This results in a saving of fees paid to the municipality, the utility companies and the Sheriff to check their records. It also results in a saving of legal fees that would otherwise have been charged.
The solicitor's opinion provides the true and correct answer. The insurance is just a "guess". If the insurance company guesses incorrectly, then it will pay. If it turns out that there are arrears of taxes, utilities or an unpaid execution, then they can still insist that the vendor pay. The insurer has the right of subrogation and will sue the vendor if necessary.
Now, the real problems arise when it comes to title, searching title, easements, encroachments, restrictive covenants, title defects, and the extent of title as determined by a survey.
Again, we have the same fairly cavalier approach by the title insurance companies. The insurance principle is based upon spreading known, measurable and predictable risks among a great many people. Quantity is of course more important than quality. High volumes lower overall risks. High volumes lower premiums.
No one here is seeking excellence. There is no reward for being correct or accurate. The reward will only exist with the "law of large numbers". If you do enough deals, and given that most will take place without problems, the few problems that do arise can be paid out of the savings by participating in the gamble in the first place.
However, if you are a developer, you need the correct, accurate answer. You're not looking for guesswork. You're not trying to save little bits of money at the front end. Also, there's an upper end limit on the title policy claim.
If you are a developer and you find out you can't build a 50 storey condo, and you thought you could, you're going to be very upset.
In these cases, spend a little extra money upfront. You don't need to gamble. Go for the gold standard and obtain a solicitor's opinion!
Brian Madigan LL.B., Broker is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com
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