Title insurance and the new boundary reality

In the early 1990s, title insurance was introduced to the Canadian real estate market, offering lenders, lawyers and homebuyers insurance against title defects, off-title building code infractions, mortgage and title fraud, as well as many property boundary defects that would otherwise have been revealed in an up-to-date land survey plan.

In doing so, title insurance made it possible for real estate transactions to close faster but with far less due diligence – it is no longer routine for the survey plan to be thoroughly examined prior to purchase to ascertain the property’s physical features – buildings, garages, sheds, fences, walls, decks, etc. – relative to the property’s boundary.

A few years ago, Krcmar Surveyors Ltd. began to notice that boundary disputes appeared to be on the rise among residential homeowners in the Greater Toronto Area. But why? Could it be that the average homeowner’s understanding of the location of their official property boundaries and any encroachments on their new property was deteriorating because the survey plan no longer figured in the purchasing process?

A lack of such awareness, the company theorized, would also lead more homeowners to undertake outdoor construction projects without a keen appreciation of their property's boundary location. This would result in unwitting encroachments such as fences, hedges and retaining walls being off the property boundary; sheds, decks, garages, patios and other structures being built partially over the boundary.

Similar issues relating to a property’s title, such as easement issues, deed/survey inconsistencies and by-law infractions were also believed to have increased from the pre-title insurance era.

That theory was tested in 2014, when Krcmar conducted a study for Protect Your Boundaries Inc. (PYB) of 415 randomly selected residential properties in the GTA to determine the prevalence and nature of boundary and title issues. The research team selected and studied the land survey plans of these properties (plans created by 44 different firms). To be identified as a boundary or title issue, the discrepancy had to be deemed significant enough that homeowners may enter into disputes over them. A fence less than 30 cm off the property line? Not counted as an “issue”. More than 30 cm off the property line? That counts – it’s the kind of situation that can lead to conflict among tightly packed neighbourhoods.

After rigorous examination, the study concluded that 49% of residential properties in the GTA have one or more such boundary issues that have the potential to flare into a boundary dispute – significantly higher than expected. It also found that 15% of residential properties in the GTA have one or more title issues. The study provided insight into the new boundary reality that now exists following 20 years of title insurance usurping the need for the land survey in the real estate transaction.

But title insurance will cover any problems, right? Actually, not all.

In fact, title insurance policies wouldn’t cover the majority (88.5%) of boundary issues identified in the study.

The findings are significant to all stakeholders in real estate - the homebuyer and seller, the lender, real estate agent, broker, lawyer, title insurance company and surveyor – because it indicates that almost half of the approximately 90,000 residential properties sold in the GTA annually carry with them one or more boundary issues that have gone undetected or been ignored since the introduction of title insurance in the mid-1990s.

In this new boundary reality, surveyors and the land survey plan have a renewed and vital role to play – helping to ensure a higher level of due diligence that protects all parties to the real estate transaction and gives new homeowners the information they need.

For more on the roles of title insurance and survey plans, see real estate lawyer Bob Aaron’s paper, Are Surveys Obsolete or the Most Important Document in the Transaction?, presented at the 12th Annual Real Estate Law Summit this week.