Title insurance, redux

After my last post on title fraud, I received a number of questions from readers regarding the necessity of title insurance — particularly in Ontario — due to recent government efforts to provide coverage for such fraud.

“[I] thought there was a new law in Ontario protecting people from this? Is title insurance really necessary anymore?” writes Glen L., who pretty much sums up the tone of queries.

Glen is referring to the Land Titles Assurance Fund (LTAF), which was set up by the Ontario government to compensate victims of certain types of real estate-related fraud and omissions.

It’s a good question. According to the government’s web site, the LTAF was created to “compensate people for certain financial losses due to real estate fraud, omissions and errors of the land registration system.” It goes on to explain that the LTAF will be “immediately responsive to each individual homeowner who has suffered a loss in a clear case of fraud. For most straightforward cases of fraud, title can be returned and a decision regarding compensation made within three months.”

This all sounds well and good, but like any government-run fund, there are terms and conditions that homeowners need to be aware of. First of all, the LTAF is a fund of last resort, not an insurance policy — and should not comprise the main safety-net aspect of your insurance plan. Costs are a potential issue, as claimants will likely need the services of a lawyer. The LTAF lists “reasonable legal costs related to the claim” as part of its coverage, which leaves the definition of “reasonable” open to interpretation. Bottom line, claimants should accept the possibility that they might be on the hook for at least some of these fees.

Homeowners may qualify for LTAF compensation under the following circumstances:

• Fraud, in certain circumstances
• Errors or omissions of the land registration system
• Errors in recording by land being brought under the act
• Errors in recording an instrument in the automated land registration system.

The Fund may award compensation for the following losses:

• Financial losses as a result of a fraud or error
• Reasonable legal costs related to the claim
• Other reasonable costs related to the claim.

By contrast, title insurance offers a more direct approach to title fraud resolution. It is no-fault insurance, has no deductible and only needs to be purchased once. It protects against losses due to unknown liens (including fraudulent or forged liens), both before and after the title policy has been issued. No claim to a government bureaucracy need be submitted, and any legal fees incurred will be covered by the insurer so long as the claim is valid.

I looked into title insurance for my home (which was purchased for less than $500,000) and was given a quote of $500. Homes of greater value will cost more to insure.

So what’s a better deal? Rely on the government to sort it out (should it occur, which is very unlikely) and plan to spend a few hundred dollars on legal fees? Or spend a few hundred today and know you’re protected?

I know which way I’m leaning.