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Focus On - Lawyers lobby CMHC to drop title insurance

|Written By Mark Bourrie - For Law Times

Lawyers have launched a lobbying campaign topersuade CanadaMort-gage and Housing Corp. to drop its plans to include title insurance in itspackage for people who buy its mortgage insurance.

Housing Minister Joe Fontana backs the idea of CMHC requiring title insurance for home buyers who purchase its mortgage insurance.
Housing Minister Joe Fontana backs the idea of CMHC requiring title insurance for home buyers who purchase its mortgage insurance.
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 is the country's largest mortgage insurer, with almost 70 per cent of the mortgage insurance market. Last year, it made $875 million on mortgage insurance. The federally owned agency took in $1.1 billion in premiums but paid out just $51 million in default claims.

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 the country.

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."

 He points out that title is already guaranteed by eight provinces and law societies provide insurance for consumers in the rare instances when a lawyer commits fraud.

 "By 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 representing Quebec 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 title insurance.

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 idea.

"We sought some input from the system as well as 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 been made.

"They [CMHC] are preparing another paper so I can look at my options," Fontana says.

"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?"

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