So far, the lobbying by the Federation of Law
Societies of Canada and the Canadian Bar Association has convinced CMHC to back
off its plans to require title insurance for its mortgage insurance clients,
but the federal housing minister wants the proposal to go ahead.
The CMHC's decision will, in effect, open the
Canadian market outside Ontario
to title insurance. In Canada's
largest province, title insurance has been a regular part of the real estate
business for the past decade. However, until now it has been rarely used in Quebec and the rest of
Quebec notaries, who
handle most of the province's real estate transactions, say they can perform
searches more cheaply than the cost of a title insurance policy. They believe
title insurance is being foisted on the Canadian real estate bar so that mortgage
portfolios can be sold more
easily in the U.S., where title
insurance is ubiquitous.
At the end of October, representatives of
provincial and national law associations met with senior CMHC officials and
housing minister Joe Fontana. As of press time, there was no sign that a policy
change was in the works.
Suzanne Leclair, Montreal-based national
vice-president of Chicago Title Insurance Co., says she was as surprised as
anyone when CMHC announced its new policy earlier this year. Leclair, a lawyer,
says she understands why lawyers are worried and angry about the decision.
"We're telling lawyers that they aren't
redundant, and that their expertise is valuable. For us, this has been a
windfall that we really didn't see coming, but I think it does give the
consumer one more piece of protection," she says.
"We're saying we need the expertise of lawyers.
A real estate deal should not close without a lawyer. Lawyers bring a type of
expertise that's important, and that goes much farther than just doing the searches
on a property. As well, we need lawyers to ensure there's choice in the system.
Lawyers can put pressure on title insurance companies to make sure that the
products they offer are what the consumer needs," she says.
Geoffrey Taber, a commercial real estet lawyer
and president of the Canadian Bar Association, says the CMHC," as a Crown
corporation, is not an ordinary insurer. By marginalizing the role of the
lawyerr, CMHC's policy will have a delitory effect on the land registry system,
which has been carefully maintained by lawyers. Canada is one of the few countries
that has a complete and accurate land registry system. Problems aren't papered
over with title insurance, as they are in the U.S."
points out that title is already guaranteed by eight provinces and law
societies provide insurance for consumers in the rare instances when a lawyer
imposing title insurance, CMHC is endorsing something that's detremental to
lawyers. We believe the best protection for consumers is for them to hire a
lawyer at the beginning of the process. Then the lawyer and client can
detremine if title insurance is necessary," Taber says.
Leclair says she has been meeting with groups
notaries and lawyers from areas of the country where title insurance has, so
far, been rarely used.
"People are worried that the traditional role
of the lawyer is lost. I believe it has simply changed. The real estate lawyer
is there to give very important technical advice. Without the presence of
lawyers, title insurers would not offer the variety of options that are
available. I believe if lawyers were out of the picture, we'd have a very small
group of companies offering a narrow range of products," says Leclair.
She says Quebec
lawyers should examine the situation in Ontario,
where about 90 per cent of all real estate transfers involve property with
At a recent conference on the impact of title
insurance on the consumer, Leclair noted title insurers have a different
outlook from Quebec notaries, who usually do a 60-year search on titles.
"As insurance brokers, we like risks, we like
lawyers, and we like skittish lenders. When faced with a title that includes a
30-year provision, a lawyer wants to know what happens if. . . . For us, it's
an acceptable risk, a mathematical equation: eight to 10 per cent of Canadian
claims are related to titles," she says.
As well, federal housing minister Joe Fontana
says this fall the government is looking at ways for CMHC to get into the
reverse mortgage business.
A reverse mortgage allows people who are at
least 62 years old and "house rich and cash poor" to withdraw up to 30 per cent
of the equity in their homes, usually in annuity-style monthly payments.
The money, plus interest, doesn't have to be
repaid until the ownership of the home is transferred, usually when the owner
sells the property, moves, or dies.
Reverse mortgages have been offered in Canada since
1986. Canadian Home Income Plan
Corp., with its CHIP reverse mortgage, dominates the business.
CHMC, which has been criticized by opposition
parties for making too much profit from Canadian home buyers (the corporation
has an unallocated surplus of over $4 billion), stands to make a substantial
profit on reverse mortgages, which charge hefty up-front fees and interest
rates that are substantially higher than the market rate for mortgages.
Fontana says he backs the
idea of CMHC requiring title insurance "because, in some instances, title is
not secure for those whose property it is. It's a worthy goal."
He says there has been some backlash to the
"We sought some input from the system as well
put out an RFP [request for
proposals]. We got responses and we got
letters. There are certain jurisdictional issues.
"I've asked CMHC to come back and give me some
options, based on what they've heard, as to what might be possible in the
future. I still would like to do it. I want to find the right mechanisms by
which to support the purchasers.
"I'm looking for options now. No decisions have
"They [CMHC] are preparing another paper so I
can look at my options," Fontana
"We put out an RFP to see who would be
interested and what it might cost. The title insurance companies came back, but
so did a whole bunch of other people who said there might be some conflicts and
some duplication, some jurisdictional issues here. That's why I've asked CMHC
to submit options to me. I still want to do it," he says.
"[Lawyers] said they provide it now in some
parts of the country as part of a much broader-based parcel of services they
offer. They all say it's an important thing for purchasers to have. And that's
where I'm coming from: how can I protect consumers?"