In previous columns, I’ve discussed the usefulness of title insurance, particularly in relation to claims and fraud scenarios.
In this column, I would like to explore other situations where title insurance can help prior to closing, or even before the lender has issued a commitment.
The FCT underwriting team receives calls daily about issues that arise during the due diligence period, looking to us for advice on how we might be able to cover over an issue in order to get the deal closed.
In addition, we are sometimes asked by lenders, prior to issuing a commitment, if we are able to cover over a known issue because they might not be able to do the deal otherwise. Below are a few examples of the types of situations we see:
A title search completed two weeks prior to closing disclosed a mortgage in favour of a lender that no longer existed. It had either amalgamated with another lender or had ceased doing business altogether. The vendors insisted they had paid the mortgage off years earlier, even providing a copy of the final payment cheque. However, the only way to close was to obtain a court order striking off the old mortgage, which would take time and compromise the closing date.
Given the information provided by the vendor, we were able to provide coverage over the issue for both the purchaser and their lender and the deal was able to close on time. The court order was subsequently obtained and the old mortgage was removed from title.
A purchaser arranged for a new survey of a property and the municipality informed them the 20-year-old building violated the municipal setback requirements. The municipality then advised that the owner would have to apply to get a variance to allow the violation to continue. The variance was approved, but there was a 30-day appeal period before the decision would be final, putting the closing scheduled to occur in two weeks in jeopardy. What’s more, the lender refused to release funds until the decision was final.
After discussing this particular issue with the lawyers on the deal, (e.g. the degree of the encroachment; whether anyone objected at the original hearing etc.) we agreed to assume the risk of there being an appeal and provided coverage for both the purchaser and the lender and the deal closed on time.
Parking agreement to expire
The lender issued a commitment for a 10-year term on an industrial building. Approximately half of the required parking spots were located on a hydro right of way. The hydro company had entered into a license agreement to allow the parking spots, but the agreement was due to expire in fewer than five years and was not open to discussing an extension of the term. Obviously, the lender was concerned about what might happen if the license agreement was not renewed during the term of its mortgage and the municipality enforced the parking requirements.
We underwrote the issue by asking a number of probing questions and by assessing the property via satellite imagery, which revealed the right-of-way ran through the back parking lots of approximately 10 neighbouring commercial properties. We also determined there was no reason to believe the hydro company would not renew the agreement; and even if it did not, the likelihood of the municipality enforcing its parking requirements on 10+ commercial properties was small. As an insurance company, it was something we were comfortable with covering for the lender.
Closing on time may only be a phone call away
Experienced and trusted title insurance companies deal with many different situations every day. If a challenge or issue comes up mid-deal, a quick call to a well-established title insurance company may be all you need to close on time.