Is any title insurance policy a good policy?
Lawyers have a duty to ensure that their purchaser clients receive good and marketable title to the properties they have contracted to buy. In particular, there is an expectation that any prior mortgages will be discharged and removed from title. Imagine the scenario where your search of title discloses an old mortgage that has never been discharged from title. You requisition a discharge of this mortgage but instead of removing it from title, the seller’s lawyer – in reliance of clause 10 of the OREA standard form agreement of purchase and sale (APS)¹ – offers to obtain a title insurance policy insuring over the old mortgage. What do you? Do you accept the offer of title insurance?
In a case that came to our attention, the buyer’s lawyer requisitioned the discharge of a mortgage that had been registered 53 years ago. The seller relied on clause 10 of the APS and offered to obtain a title insurance policy for the buyers as a remedy. The title insurer offered to insure over the old mortgage for the buyers and lender (against loss or damage due to a claim to an interest in the title to the property), however, the policy contained exclusions: the buyers would not be covered for the loss of marketability; and, the buyers or lender would not be covered for the cost of removing the old mortgage from title. The buyer refused to accept the insurance policy on the basis that since marketability was not covered, nor the removal of the old mortgage from title, the policy did not adequately cover the risks. On this basis, the buyers’ lender also declined to advance funds to close the transaction.
The parties utilized the dispute resolution mechanism pursuant to the Vendors and Purchasers Act, R.S.O. 1990. The seller asked for an order declaring they satisfactorily responded to the buyer’s letter of requisition by providing title insurance coverage. In the alternative, the seller requested that the court issue an order to discharge the mortgage pursuant to subsection 12(8) of the Mortgages Act, RSO 1990, c M 40.
The seller argued that the parties could have negotiated a different contract (in other words, the buyers could have amended clause 10 of the APS), but they did not. Since the buyers agreed to the provisions of the APS, they could not now rewrite the agreement.
The buyers argued that they were being forced to accept title to the property with an encumbrance on title, based on a title insurance remedy that was deficient and not in their favour.
Unfortunately, in this case, the court decided not to deal with the sufficiency of the proposed title insurance policy and, based on the evidence provided, granted an order to discharge the old mortgage.
It should be noted, in this case, the seller made significant efforts to investigate the old unclaimed mortgage.
Do you think the requisition was satisfactorily answered in this case? What would you have done? This writer’s personal opinion is that although the APS does provide for the seller securing a title insurance policy, not just any policy will do. The policy must adequately and fully protect the buyer, lenders, lessees and any other party from the very risk that is being legitimately requisitioned. Also, in some circumstances, a title insurance policy is not the right answer when good conveyancing practice calls for an order to discharge a 53 year old mortgage that no one has claimed in at least 40 plus years.
When acting for purchaser clients, pay close attention to the coverage, exceptions and exclusions in title insurance policies to ensure your clients (including lender clients) are getting the appropriate coverage.
¹ Clause 10 OREA standard purchase of agreement and sale: “Provided that the title in this Agreement is good and free from all registered restrictions, charges, liens and encumbrances, except as otherwise specifically provided for in this Agreement… If within the specified times referred to in paragraph 8 any valid objection to title or to any outstanding work order or deficiency notice, or to the fact the said present use may not lawfully be continued, or that the principal building may not be insured against risk of fire is made in writing to Seller and which Seller is unable tor unwilling to remove, remedy or satisfy or obtain insurance save and except against risk of fire (title insurance) in favour of the Buyer and any mortgagee, (with all related costs at the expense of the Seller), and which the Buyer will not waive, this Agreement notwithstanding any intermediate acts of negotiations in respect of such objections, shall be at an end and all monies paid shall be returned without interest or deduction… Buyer shall be conclusively deemed to have accepted Seller’s title to the property.”