An Overview of Title Insurance and How it can Protect You!

The purchase of a home is probably one of the most significant purchases many will make in their lifetime. Title insurance is one way to protect the purchaser: it is a contract to indemnify up to the face amount of the policy a purchaser (or mortgagee) in the case a loss arises from one or more specified causes. It allows purchasers (and lenders) to “insure over” certain problems, rather than repairing them.

Insurance policies can vary from jurisdiction to jurisdiction and insurer to insurer. The value of title insurance depends upon the terms of the policy. A property owner has a claim against the insurance company if a specified risk causes a loss, regardless of the source of that loss. Title insurance generally does not cover items that will not be revealed by public records.

Compare this to a lawyer’s opinion on title. In this case, a purchaser only has a claim against that lawyer – and only if it can be proved that the cause of the loss fell within the scope of the lawyer’s retainer, and that he acted negligently. So, a loss due to the fault of another (i.e. municipality) will not be covered by a lawyer’s errors and omissions insurance, yet it would be covered by title insurance. Further, a lawyer’s opinion is only relevant to the state of the property as of closing, and does not cover “post-policy date” events. Title insurance, however, does offer coverage of this sort (i.e. neighbour starting to encroach on the property, or the fraudulent discharge of a mortgage that harms the lender’s interest).

It should be noted that lawyers are forbidden from receiving any compensation from a title insurer, nor can they receive any fee or commission for recommending a specific insurer. Moreover, title insurance may even reduce the legal bill of a purchaser, since certain searches may be waived by the title insurer.

A traditional policy covers the following:

- Title to the estate;
– Any defect in and charge, lien, encumbrance on the title;
– Unmarketability of title;
– Lack of a right of access to and from the land.

Title insurance is generally used as an alternative to an up-to-date survey of the property. This is to facilitate mortgage financing. If a purchaser pays for a lenders-only policy in place of a survey, he or she has no protection with respect to defects that would have been revealed by a survey. It is akin to a homeowner who buys an insurance policy for theft, but then leaves the front door unlocked. A survey can greatly assist in detecting and repairing title issues before closing.

A purchaser is generally asked to sign an acknowledgement before closing that outlines that he or she understands the policy does not cover:

- Future changes or additions to the structures located on the property, or changes to the use of the property;
– Matters the purchaser created, agreed to, or was aware before closing without having disclosed them to the insurer;
– Defects apparent from a home inspection report;
– Government rights
– Lack of compliance with fire retrofit or building code requirements;
– Residential rent regulation.

Remember to contact an experienced associate at Mullun when purchasing your home to ensure that you are protected!

An Overview of Title Insurance and How it can Protect You!

The purchase of a home is probably one of the most significant purchases many will make in their lifetime. Title insurance is one way to protect the purchaser: it is a contract to indemnify up to the face amount of the policy a purchaser (or mortgagee) in the case a loss arises from one or more specified causes. It allows purchasers (and lenders) to “insure over” certain problems, rather than repairing them.

Insurance policies can vary from jurisdiction to jurisdiction and insurer to insurer. The value of title insurance depends upon the terms of the policy. A property owner has a claim against the insurance company if a specified risk causes a loss, regardless of the source of that loss. Title insurance generally does not cover items that will not be revealed by public records.

Compare this to a lawyer’s opinion on title. In this case, a purchaser only has a claim against that lawyer – and only if it can be proved that the cause of the loss fell within the scope of the lawyer’s retainer, and that he acted negligently. So, a loss due to the fault of another (i.e. municipality) will not be covered by a lawyer’s errors and omissions insurance, yet it would be covered by title insurance. Further, a lawyer’s opinion is only relevant to the state of the property as of closing, and does not cover “post-policy date” events. Title insurance, however, does offer coverage of this sort (i.e. neighbour starting to encroach on the property, or the fraudulent discharge of a mortgage that harms the lender’s interest).

It should be noted that lawyers are forbidden from receiving any compensation from a title insurer, nor can they receive any fee or commission for recommending a specific insurer. Moreover, title insurance may even reduce the legal bill of a purchaser, since certain searches may be waived by the title insurer.

A traditional policy covers the following:

- Title to the estate;
– Any defect in and charge, lien, encumbrance on the title;
– Unmarketability of title;
– Lack of a right of access to and from the land.

Title insurance is generally used as an alternative to an up-to-date survey of the property. This is to facilitate mortgage financing. If a purchaser pays for a lenders-only policy in place of a survey, he or she has no protection with respect to defects that would have been revealed by a survey. It is akin to a homeowner who buys an insurance policy for theft, but then leaves the front door unlocked. A survey can greatly assist in detecting and repairing title issues before closing.

A purchaser is generally asked to sign an acknowledgement before closing that outlines that he or she understands the policy does not cover:

- Future changes or additions to the structures located on the property, or changes to the use of the property;
– Matters the purchaser created, agreed to, or was aware before closing without having disclosed them to the insurer;
– Defects apparent from a home inspection report;
– Government rights
– Lack of compliance with fire retrofit or building code requirements;
– Residential rent regulation.

Remember to contact an experienced associate at Mullun when purchasing your home to ensure that you are protected!

Legal Clauses in the Agreement of Purchase and Sale: Protect Yourself!

The following are common examples of legal clauses that can actually work to your disadvantage if not worded correctly:

1. Survey Clause:

a. Homebuyers can have a survey clause added in to the agreement; however, most buyers today purchase title insurance instead. If you feel the need to request a survey, keep in mind who will be paying for it as they can be anywhere from $700 to $1200. Also consider the amount of time needed to obtain it and review it before the completion of the sale.
b. From the Sellers perspective, remember that a survey of your property may not be up-to-date. Maybe an addition (i.e. swimming pool) has been added. As a vendor, you may have to bear the cost of a new survey if it is required by the buyer. It is always best to offer the survey of the property to the purchaser if available. If not specified, you may be on the hook to provide one!

2. Home Inspection Clause:

a. Previously, this clause stated that the buyer can rescind their offer if they were dissatisfied with the outcome of a home inspection. This led to minor repair issues being used against the seller by allowing the purchaser to kill the deal when they had a change of heart. Not only would the seller have declined other offers by this point, which may not be lost forever, but his or her home may now be labelled as a ‘problem house’ which subsequent parties could use against the seller in negotiations. Further, the seller is now stuck listing a property on the market again, thereby incurring additional carrying and listing costs.
b. This clause can sometimes state that the seller has the option to fix any items flagged by the home inspection. This wording protects the buyer and the seller; the former is buying a house that meets structural standards, and the latter is protected against the buyer having a change of heart. Not all agreements are written this way; how it is stated will reflect the interests of the one offering. Always remember the significance of accepting an offer or changing the clause at the risk that the other party may reject the change and end the agreement.

3. Swimming Pool Clause

a. If the property contains a swimming pool, there should be a specific legal clause addressing it. Some agreements provide a warranty to the pool to survive closing. A broad clause protects the buyer; however, the seller may request a clause indicating that, at the time of closing, he or she believes the pool to be in good working order.
b. A common question from a vendor is: “I have a swimming pool which does not have a permit. Must I disclose this to a potential purchaser? The answer: “Buyer Beware” is the law in Ontario. The purchaser buys at his or her own risk, and buys the property “as is.” This is why it is critical for them to have their own inspection. However, if a vendor is specifically asked whether or not their pool has a permit, they cannot lie or misrepresent the property. So, while they do not have to volunteer this information, they cannot avoid the truth if asked about it directly.

By being aware of these legal issues, and by seeking advice from an experienced real estate professional and obtaining legal advice, you can protect yourself against unnecessary cost and hardship. Make sure to consult a lawyer at Mullun to ensure your interests are protected!

It’s time to close, now what?

Closing on a real estate deal is a congratulatory time. The seller, freeing themselves of a past liability and the buyer, excited for a bright future for their new purchase. The seller walks away with money in the bank, and buyer walks away with money out of the bank, a new piece of real estate, and liability. For the buyer, the liability aspect of this should be especially concerning, and more so if the property will include chattels, such as a washing machine, dryer, dishwasher, and cabinetry. The purchase and sale agreement typically includes a clause to insure the chattels will be in working order. This sounds fair and nothing to be concerned about, but what does it really mean?
A purchase and sale agreement survives only through closing, this means, after closing if the property or chattel is discovered to be in subpar or in non-working order, the buyer typically left without a remedy for snoozing past the guarantee afforded in the purchase and sale agreement. The onus is on the buyer to examine the property and its chattels before accepting the keys. Don’t fall victim to inheriting problems. Conduct a walk-though of the property on the day of closing and when in doubt examine, examine, examine!. Below I have listed items which should be inspected before accepting key’s to your new property:
• Test all of the appliances – make sure appliances which are included are in satisfactory working condition;
• Test all of the plumbing, open all faucets; check that the water pressure is satisfactory and drainage is sufficiently rapid;
• Test the air conditioning and heating system – check if both adjust as you adjust the temperature;
• Examine all walls and ceilings for spots which might indicate water damage or leaks;
• Examine the basement floor, walls, and ceiling for water damage, leaks, or history of flooding;
• Examine for cracks in concrete foundation walls and floors – keep in mind that thin hairline cracks may be normal in concrete because it shrinks when drying;
• Examine all doors and cabinets to ensure that they open and close with ease;
• Examine the attic (if there is one) to make sure the insulating material covers all floor areas leaving that the vent areas open to allow air to flow freely;
• Examine the fireplace (if there is one) – make sure the vent is functional and that it draws.
• Read the property description as it is laid out in the purchase and sale agreement to insure that it conforms to what you see during the walkthrough;
• When in doubt examine, examine, examine!
Upon completing your walkthrough produce a list of all defects to the seller. Before closing, in writing, require the seller to commit to repairing the defects before or after the closing. If the repairs are to be completed after the closing and transfer of title, the list of defects along with the seller’s commitment to repair after closing become a part of the closing documents.

Restrictive Covenants in Real Estate Transactions.

A restrictive covenant is basically an agreement by one party (the covenantor) to do or not do something with the land he or she is buying from another party (the covenantee). This means that a covenant is a promise made by the buyer to the seller. The covenantor is bound by the burden of the covenant, while the covenantee has the benefit of the covenant.

As long as the original parties own the land in question, there are no issues as it is a simple contractual matter. The main issue is whether or not covenants will run with the land; in other words, whether the covenant will still be enforceable on a subsequent landowner.

At common law, the general rule is that the burden of a covenant cannot run with the land. However, the common law will allow the benefit to run in certain circumstances, if the following conditions are met:

1. The original covenantee had the legal estate in the land which is to be benefited.
2. The successor in title to the original covenantee obtains the same legal estate, and the benefit was intended to run with the land, it was not a mere personal covenant. Not a personal promise that depended on the identity of the original covenantee.
3. The covenant must touch and concern the land which is to be benefited (the “dominant” land).

In equity, a covenant can be enforced against successors in title to the original covenantors if the following four requirements are met:

1. Covenant must be negative in substance (i.e. – don’t do something).
2. There must be a dominant and servient tenement.
3. The covenant must touch and concern the land of the covenantee.
4. Successors-in-title to the covenantor must have notice of the covenant.

Do not hesitate to contact Elmira Chimirova, a lawyer with Mullun, if you would like to know more on this topic. Elmira can be reached at elmira@mullun.com or (800) 878-1630 ext. 102.

Real Estate Practice Tips: 7 Things You Need to Know With Respect to Your Real Estate Transaction.

1. Just because your sale closes on Thursday does not necessarily mean you get your cheque same day. It could be the next day.
2. Do not plan movers early in the day if you are buying, you may not receive keys until late in the day. Professional movers are expensive.
3. There will probably be a penalty on your mortgage payout.
4. Arrange for bridge financing. Buying/selling on the same day is stressful.
5. HST is, in general, in addition to the commission payable to a real estate agent.
6. Cancel any Pre-authorized Payment Plan with the property tax department, mortgage company, utility companies, etc. Contact utility companies yourself to arrange moving in/moving out.
7. Avoid scheduling your closings on the first and last day of the month. These are the busiest days in terms of real estate closings, and lawyers, real estate agents, lenders, mortgage brokers, etc., are strained to provide services you deserve.

Do not hesitate to contact Elmira Chimirova, a lawyer with Mullun, if you would like to know more on this topic. Elmira can be reached at elmira@mullun.com or (800) 878-1630 ext. 102.

Remedies for Breach of Contract.

There are three main remedies available for breach of contract, such as damages, specific performance and rescission.

1.Damages – The common law remedy whereby the money is used to compensate a civil wrong to an innocent party. There are three categories of damages that may be awarded if a breach of contract claim is proved. They are: (1) compensatory or expectation damages, which put an innocent party in the position she/he would have been in had the contract been performed; (2) reliance damages, which restore an innocent party to the position they were in before they were harmed or/and injured; (3) restitutionary damages, which prevent unjust enrichment of one party. Unjust enrichment may occur any time one party gains profits at the expense of another party. Therefore, the compensation is based not on what an innocent party has suffered but what a guilty party has gained (unjust enrichment).

2.Specific Performance is an equitable remedy that compels a party found in breach of his/her contractual obligations to perform a specific act according to the precise terms agreed upon, meaning to perform exactly what they had agreed to. This remedy is available for some breaches of contract. It is used to be awarded as a matter of course for contracts for the sale of land because of the land’s uniqueness.

3.Rescission is also an equitable remedy that brings a contract to an end and restores an innocent party to his/her pre-contractual position. Note: Please do not confuse with a decision to rescind (i.e. terminate) a contract for breach of a condition and to sue for damages.

Do not hesitate to contact Elmira Chimirova, a lawyer with Mullun, if you would like to know more on this topic. Elmira can be reached at elmira@mullun.com or (800) 878-1630 ext. 102.