Today’s post is a guest blog from Corinna Stevens, attorney with the Byron and Company law firm[note]We also recommend Don Scott McMurray Law Office and Allenby Law[/note]here in Fort McMurray.
The Real Property Report, Title Insurance, and You
The standard Alberta Real Estate Association Residential Purchase Contract, used almost exclusively by all realtors in Fort McMurray, contains a term which requires the seller of a property to provide the buyer a Real Property Report, or RPR, with evidence of municipal compliance or non-conformance, as part of the Closing Documents (section 10.2). However, in Fort McMurray, this term is usually crossed out and an additional term is added indicating that the seller will pay for title insurance for the buyer instead of providing a Real Property Report. Most buyers, and even some sellers, do not even know what an RPR is, let alone what title insurance is for.
So what is a Real Property Report (RPR)?
The Alberta Land Surveyors' Association defines a Real Property Report as "a legal document that clearly illustrates the location of significant visible improvements relative to property boundaries." It is essentially a sketch of the bird's eye view of the property showing the boundaries and where the house, garage, shed, fence, driveway, and other improvements are located. RPRs are prepared by certified Land Surveyors.
What is Municipal Compliance?
Once an RPR is prepared, it can be submitted to the local government for review. In Fort McMurray, that would be the Regional Municipality of Wood Buffalo. The municipality reviews the RPR to determine if it is in compliance with all current local land use by-laws. If a property is not in compliance, the property owner has the option to seek a variance (essentially permission to be non-compliant with the by-law) or will need to take steps to remedy the issue.
What is the purpose of an RPR and Municipal Compliance?
When you are purchasing property, it is important to know in advance if there are any issues with the property that could cost you money to fix. Much like you do a home inspection to make sure the house is in good working order and is in compliance with safety codes and other laws, it is also important to make sure the property itself is in compliance with local land use by-laws. If not, you could be responsible for fixing issues, such a relocating a building or driveway, which can be very expensive. Knowing in advance what you are purchasing is important, as it allows you the opportunity to shift responsibility for remedying defects to the seller or make the decision not to purchase the property.
What is Title Insurance?
Title Insurance is similar to other forms of insurance you may purchase, such as travel insurance or home insurance. It protects you from the financial repercussions of issues with title which you are not aware of now, but may be discovered in the future.
Like other forms of insurance, title insurance is not perfect. It does not protect you from the hassle of dealing with the issue, such as relocating a building. It also does not protect you from issues that you have knowledge of (like "pre-existing conditions" for travel insurance). The purpose of title insurance is to protect you from suffering a financial loss as a result of defects with title. The insurer may choose to pay you out or fix the problem.
Title insurance can also protect you from title fraud and other issues that an RPR would not identify. It is important to carefully read your policy so that you know what you are covered for and what you are not covered for.
Why use Title Insurance?
The simple answer for why seller's offer title insurance instead of obtaining an RPR is that it is cheaper and faster. The cost of title insurance does depend on the value of the property (and mortgage), but is usually only a few hundred dollars. It is a rather straightforward application process and your lawyer can usually receive the insurance policy within days of applying. RPRs, however, can cost thousands of dollars and can take weeks to complete, depending on how busy local surveyors are. In addition, the RPR needs to be submitted to the municipality to be reviewed for municipal compliance which can also take time. With closing timelines often less than a month, most buyers and sellers would rather not wait for an RPR.
Another reason many sellers prefer to provide title insurance, rather than obtaining an RPR, is that when they purchased the property, they also were provided title insurance in lieu of an RPR. The sellers may not know if the property is in compliance so would rather not risk finding out there is a problem right before trying to sell the property.
From a buyer's perspective, it is also important to note that most mortgage lenders will require a recent RPR before they will release mortgage funds. The definition of "recent" will depend on the individual lender, but most prefer the RPR is less than a year old. The contract does not state that the seller needs to provide a recent RPR. Most lenders will accept a lender's policy of title insurance in lieu of a recent RPR. Even if the seller is providing you with an RPR, you may still require title insurance. Some lenders will even insist on title insurance, even if there is a recent RPR.
Do I have to accept Title Insurance from the seller?
The easy answer is no, you do not have to accept title insurance from the seller in lieu of an RPR and municipal compliance. The Residential Purchase Contract is a legal contract. You cannot be forced to accept any terms, or the deletion of terms, that you do not want to.
However, the seller also cannot be forced to sign a contract requiring them to provide an RPR. If you do not want to accept title insurance in lieu of an RPR, or any other term the seller may insert or delete from the contact, the seller does not have to sell the property to you and may decide to try to find another buyer.
Where can I find more information about title insurance?
For more information about title insurance, talk to your lawyer. You can also find more information on the following sources:
Real Estate Council of Alberta: https://www.reca.ca/industry/legislation/information-bulletins/title-insurance.htm
Insurance Bureau of Canada: http://www.ibc.ca/bc/home/home-buying-tips/title-insurance
First Canadian Title: https://fct.ca/property-owners/
Chicago Title Insurance Company: https://www.chicagotitle.ca/residential/property-owner-buyer
The within blog is for informational purposes only and not for the purpose of providing legal advice. You should contact your lawyer to obtain advice with respect to any particular issue or problem. Use of and access to this blog or any of the links contained within it do not create an attorney-client relationship between Corinna Stevens and the user or browser. The opinions expressed at or through this blog are the opinions of the individual author and may not reflect the opinions of the firm or the profession. Any links provided within the blog are for informational purposes only and not for the purpose of providing legal direction or advice. The author does not guarantee the accuracy of any information contained in the within links.