The last thing borrowers want is an additional cost, especially at closing. Yet, today mostly all lenders are requiring title insurance.
Why can’t we just rely on a lawyer’s opinion like we used to?
The primary reason is that title insurance will cover the lender for things that a lawyer’s opinion does not.
Perhaps the most important of these is fraud – namely, identity fraud.
A lawyer’s opinion does nothing to protect a lender for loss arising out this increasingly common crime. As an example, how do we know that John Smith, with legitimate John Smith ID, is the same person as the John Smith named on title? The short answer is that we don’t. Without title insurance, that mortgage could be a complete loss for the lender.
Another reason is that the insurer will cover the lender’s legal costs.
If the mortgage validity, enforceability, or priority are challenged and require legal action, the cost incurred through legal fees can be quite significant. Having the insurance creates a substantial benefit to the lender.
Of course, there are the plethora of other covered risks that title insurance provides.
Benefits such as:
- Survey coverage
- Gap coverage
- Title problem coverage
In the end, title insurance provides an additional layer of protection for the lender (and most importantly the lender’s investors). Protection that is far greater than what is afforded by a lawyer’s opinion. That is why title insurance has now become the industry standard in Canada, especially for private and non-bank lenders.