The Western Torrens Project
Consultation Paper (May 2000)
Prepared by: Susan V.R. Billington, Project Director,
- Why Is The Law Society of Alberta Involved?
- Background to the Western Torrens Project
- Canadian Lawyers’ Insurance Association (CLIA)
- The Protocol for the Issuance of Solicitor's Opinion
- Consultation with the Real Estate Bar
The Western Torrens Project is a joint response of the law societies of Alberta, British Columbia, Saskatchewan and Manitoba to the many changes in the residential real estate and conveyancing marketplace within which lawyers provide legal services to the public. The project proposes a restructured residential real estate practice which will expedite the conveyancing processes for lenders, provide consumers with continued access to independent legal advice and will ensure the integrity of the Torrens land registration system is preserved.
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2. Why Is The Law Society of Alberta Involved?
The mandate of the Law Society is to act in the public interest. The mission of the Law Society of Alberta is:
To serve the public interest by promoting a high standard of legal services and professional conduct through the governance and regulation of an independent legal profession.
The intention of the Western Torrens Project is to provide members of the Law Society of Alberta and members of the law societies in the other three western Canadian provinces with the tools necessary to continue to be active participants in the conveyancing marketplace. It is in the public interest that lawyers continue to be active players in residential real estate conveyancing for the following reasons.
1) Independent Legal Advice - A residential purchase is often the single largest investment for a person or family. Lawyers provide information and broadly based independent advice to clients to protect and assist with this important transaction.
2) Integrity of the Land Titles system - It is also in the public interest that the integrity of the Torrens system of land registration remain intact. Lawyers’ involvement in the conveyancing process has ensured that the Torrens system has been properly utilized and maintained. In a real estate transaction, lawyers are required to register transactions that will accurately reflect the state of the title. This has resulted in a land registry system that "has widely been acknowledged as one of the most efficient, accurate and reliable land recording systems in the world." The Alberta Torrens land registration system based on the fundamental tenets of the mirror principle, the curtain principle and the assurance fund, provide the public with a safe, secure and cost effective system of land registration and tenure which is in the public interest to safeguard and protect.d a report on specialists with respect to practitioners of tax law.
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3. Background to the Western Torrens Project
The Title Insurance Working Group of the Law Society of Alberta has monitored changes in the conveyancing marketplace and the impact of title insurance for the past several years. Representatives of that committee met with representatives from across Canada in February 1998 at the Federation of Law Societies conference National Summit on the Future of Real Estate Conveyancing. The mandate of this conference was to recommend a national response of the legal profession to the changes in the conveyancing marketplace.
Leading up to the Federation of Law Societies National Summit on the Future of Real Estate Conveyancing, much work and study on the changing real estate conveyancing marketplace was conducted. Several conclusions were reached:
1) Conveyancing lawyers face a changing and increasingly competitive environment. This change is likely driven by the changing business practices of the banks and other financial institutions and by large U.S. title insurance companies. Unless the Bar can respond with a competitive product, there will be a decrease if not the elimination of solicitors in residential conveyancing;
2) Consumer protection may be at risk if the changes result in diminished access to independent legal advice and the erosion of the public land registry systems;
3) From the perspective of banks, products such as title insurance are competitive because they make the lending process easier; the insurance protection provided is not perceived as the primary interest;
4) Lawyers need to recognize the differing needs of their two clients, the individual consumer and the lender. The lender needs standardization and efficiency. The consumer needs a broader level of independent advice that is unique to each transaction. Lawyers are uniquely positioned to meet both these sets of needs;
5) Lawyers need to and can respond to the changing environment. New ways of delivering services to both lenders and purchasers should be developed to respond to the changing marketplace;
6) There is a need for a level playing field with the competition in the marketplace. Lawyers need to develop a new product that is competitive in the marketplace; and
7) An assessment of the impact on lawyers’ liability insurance programs is necessary for any new product that may be introduced.
At the National Summit, the delegates from British Columbia, Alberta, Saskatchewan and Manitoba identified a similarity in interest and approach among the four western provinces. This similarity was based on several things but in particular on the fact that each of the four western jurisdictions has a similar Torrens land registry system. Later in 1998, a series of meetings were held in Calgary of law society and real estate practitioner representatives from the western provinces. In February 1999, a proposal was developed by the Law Society of British Columbia outlining the basis of the Western Torrens Project. The Western Torrens Project was born. The Western Torrens Project Committee has representatives from law society staff and real estate practitioners from each of the four jurisdictions. The main aspects of the proposal are: 1) a standard report/notification that can be used by solicitors to report to lending institutions and expedite the release of funds and closing of real estate transactions; 2) a process that eliminates the need for interim financing in back to back transactions; and 3) the provision of coverage through existing liability insurance programs for the risks to lenders of survey and zoning impairments.
The law societies of the western provinces have proceeded to take a western Canadian approach based on the following;
1) A national response to the changing conveyancing marketplace, while still possible, will take some time. The Federation of Law Societies and the Canadian Bar Association have committed time and resources to a national Real Estate Project. The Western Torrens Committee representatives are active participants with in national initiative. Because of the differences in land registry systems between western and eastern Canada and the difficulties in obtaining a national consensus, a western approach should be able to be achieved more quickly;
2) The representatives from the western Torrens provinces do not accept the approach that the best response to title insurance is to create a lawyer-owned title insurance company which issues a title insurance product (the LPIC approach - TitlePlus);
3) The similarities of conveyancing practices and Torrens land titles systems make a western approach attractive and possible.
4) The law societies of the four western provinces have agreed to commit money and resources to developing and implementing a western response. Each jurisdiction has agreed to develop a Protocol that will restructure conveyancing practices and result in a product that can be marketed to lenders in western Canada. This process has developed into a thoughtful review of current conveyancing processes and how those processes might be improved or enhanced for the benefit of clients;
5) The Canadian Lawyers’ Insurance Association (CLIA) is supportive of the Western Torrens Project initiative. The participation of CLIA is an essential element of the Western Torrens Project. In Alberta, Sarah Brickett, director of insurance, Alberta Lawyers’ Insurance Association, has been an active participant in the Western Torrens Project Committee as have the directors of insurance in the other western provinces. CLIA and ALIA have been supportive in providing input as to the type of product and change in process that can and will be covered by the lawyers’ liability insurance programs currently in place;
6) From previous discussions with the major lending institutions, a change in business efficiencies of lawyers’ conveyancing practice would be welcome;
7) Those conveyancing lawyers consulted to date are supportive of the initiative to restructure the conveyancing process.
In Alberta, the Title Insurance Working Group was reorganized in February 2000 under the name of the Alberta Conveyancing Advisory Committee. The Alberta Conveyancing Advisory Committee is charged with the mandate of developing the Alberta legal profession’s response to the change in the conveyancing marketplace and with developing the Protocol of Alberta real estate conveyancing practice to be implemented in association with the Western Torrens Project. The committee has met for many hours over the past several months to prepare a draft protocol.
On April 6, 2000, the Alberta Conveyancing Advisory Committee representatives attended at the convocation of the benchers of the Law Society of Alberta. The benchers passed a motion approving the protocol in principle. This gives the "green light" to the committee to proceed with the Western Torrens Project and the restructuring of conveyancing practice. This motion was made subject to several conditions:
1) Approval of the Protocol by CLIA;
2) Actuarial support for the concept of underwriting the Protocol solely through the existing errors and omissions program, with or without a small per transaction fee charged to each lawyer handling a conveyance using the Protocol;
3) Acceptance by the lenders;
4) Continued liaison with the other western provinces to pursue adoption of these or similar changes in conveyancing practices across western Canada; and
5) Acceptance of the protocol generally by the real estate Bar in the province.
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4. Canadian Lawyers’ Insurance Association (CLIA)
The benchers approval in principle of the adoption of the protocol is subject to the approval of CLIA. CLIA is the organization of several law society insurance programs in Canada that underwrites part of Alberta’s liability insurance program. A draft form of protocol as developed by the Law Society of Manitoba was submitted to CLIA earlier this year. CLIA through its actuaries, conducted an assessment of the incremental risk that the changes in conveyancing process will pose for the errors and omissions liability programs. The assessment concluded that the changes proposed will have a minimal effect and the risk of increased claims due to the change in practice is very low. It is anticipated that no transaction fee will be required and that current reserve levels and premiums are sufficient to support the restructured process.
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The benchers motion made approval of the protocol subject to the acceptance by lenders. Liaison with lending institutions has begun. The lenders are business oriented. They want processes that facilitate business transactions. The lenders do not see a difficulty with risk in transactions completed by lawyers. The lenders are mostly interested in title insurance to the extent it makes it easier for them to do business, not because they see risks that are not being covered by current real estate conveyancing practice. The lending institutions want simpler processes with less paper and preferably using new and emerging technologies. For instance, they do not want traditional title opinions, which must be laboriously examined and checked to see whether funds should be advanced. Further, they do not want to have to chase a lawyer for several months after a transaction has closed for a final opinion on title. They want a "green light" or a "red light" that indicates whether the mortgage is secured and whether to fund the transaction or not. The title insurance companies have delivered an efficient product that fulfills this business need.
Lenders have also indicated that lawyers provide added value to their customers. Lawyers provide broadly based independent legal advice to customers of the bank in explaining the many legal nuances of a real estate transaction, both in a new home purchase and on refinancing. Lenders have indicated that they value the services lawyers are able to provide. However, the business efficiency to the lending institution is a paramount consideration. If the Bar is able to provide a more efficient business process while maintaining the same protections, then this would maintain the competitiveness of the solicitor’s services in the conveyancing marketplace. In the words of one banker: "Title insurance if necessary, but not necessarily title insurance."
Promotion of the Western Torrens Project and the Solicitor’s Opinion with the lending institutions is underway. The Western Torrens Committee is currently developing strategy and contacts with the various lending organizations to promote the Western Torrens Project. Indications from the lenders to date are positive as the lenders are receptive to investigating new business efficiencies and working with lawyers to achieve better customer service for their mutual clients.
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6. The Protocol for the Issuance of Solicitor's Opinion (The Protocol)
The intention of the Protocol is to streamline conveyancing practice and to provide business efficiencies in the real estate conveyance process involving single-family residential property including existing condominiums. The Protocol will not apply to multi-family dwellings or commercial property transactions.
Where a purchase transaction does not involve mortgage financing, the Protocol Closing procedure may still be used. In such circumstances, those Protocol provisions relating to the Buyer’s mortgage or the requirements of the lender may simply be disregarded. Also, the Protocol procedure may be used on mortgage refinancings, in which case, only those provisions relating to the mortgage or the lender’s requirements apply.
The Protocol prescribes the conditions precedent to the issuance of a Solicitor’s Opinion. The Solicitor’s Opinion facilitates the full release of funds upon the submission of documents for registration to the land titles office on the closing date.
The Protocol brings the practice of funding mortgages (not the practice or law) in the four western provinces into conformity. The key process change in Alberta, Saskatchewan and Manitoba will be the requisition and payout of all funds to the Seller and other parties due funds on or before the submission of documents to the land titles office as is currently the practice in British Columbia. The key process change for all four jurisdictions is that the requisition and payout of mortgage funds upon or before submission of documents will be triggered by the issuance of the Solicitor’s Opinion to the lending institution.
Existing professional liability insurance coverage afforded to all insured lawyers will be extended to protect against two new risks, namely;
1) claims resulting from loss to a mortgage lender due to errors or omissions in matters of title, security registration or priority, survey impairment or zoning resulting from a Protocol closing: and
2) claims resulting from loss to a purchaser due to errors or omissions in matters of title resulting from a Protocol closing.
Where a claim is made against a lawyer arising out of one of the new risks identified above, the usual deductible obligations of that insured lawyer will be waived, provided that the lawyer has adhered to the practices prescribed by the Protocol.
The insurance coverage will be subject to the condition that the lawyer has documented compliance with the Protocol for Alberta prior to the issuance of the Solicitor’s Confirmation. The focus of the Protocol is on practice and procedure rather than on substantive law. The Protocol is not intended and should not be read as a comprehensive statement of the duties of a lawyer when acting on the purchase, mortgage or sale of residential real estate. All standards of the prudent real estate practitioner still must be taken. The requirements of prudent practice, including special practices regarding multiple representations, transactions involving divorce/matrimonial property, leasehold properties, revenue properties and condominiums still must be followed.
The closing process is detailed in the Protocol: for the Seller’s lawyer in Part D, clause 7.1 and 7.2; and for the Buyer’s lawyer in Part E, clause 8.1 and 8.2. In general the closing procedure is as follows:
Before closing, the Buyer’s lawyer will confirm the solicitor’s instructions with the lender.
Before Closing, the Seller’s lawyer will forward the transfer and statement of adjustments to the Buyer’s lawyer on appropriate trust conditions.
The Buyer’s lawyer before the use of the transfer documents and on or before closing will have the Buyer’s cash to mortgage held in trust and will have the Buyer’s executed mortgage and all other documents required by the Lender in hand.
On the closing date, the Buyer’s lawyer will obtain a title search that is free and clear of all encumbrances other than those agreed to between the parties.
The Buyer’s lawyer will issue to the lender the Solicitor’s Opinion.
The Buyer’s lawyer will obtain the Buyer’s mortgage funds from the lender.
The full balance due on closing will be paid to the Seller’s lawyer subject to the Seller’s lawyer’s undertakings.
The Buyer’s lawyer will forward (within 2 business days) the transfer and mortgage documentation to the land titles office for registration. If documents are rejected by the land titles office, both Buyer’s and Seller’s lawyers have the obligation to correct the documents for re-submission for registration.
The Seller’s lawyer will complete undertakings provided to the Buyer’s lawyer.
The closing procedure will require a shift in thinking for real estate practitioners. We are used to holding funds until we are certain that the transfer and mortgage documents are properly registered at the land titles office. Under a Protocol closing, funds are released to the Seller’s lawyer upon closing and before or concurrent with submission of the transfer documents and mortgage to the land titles office. As indicated above, the incremental risk assessment of the closing procedure, (funding before registration by the land titles office is complete), as well as the extension of survey and zoning coverage to the lenders has been completed and approved by CLIA. There is some risk of intervening events that could prevent or delay registration. It is anticipated that problems associated with the new closing process would be uncovered very quickly, and most would be resolvable by prompt intervention and mitigation.
The Protocol closing procedures should provide the business efficiency lenders are looking for. As well, it eliminates the need for bridge financing for those Sellers who are also involved in a purchase.
A draft of the Solicitor’s Opinion is attached to the Protocol as Schedule I. The Solicitor’s Confirmation is intended to provide lenders with the "green light" that they need in order to advance funds. It is a simple one page document that is intended to expedite the funding and reporting process to the lender. It confirms that the real estate transaction has been conducted in accordance with the Protocol and the lender’s instructions, and provides the solicitor’s opinion that the mortgage proceeds can be funded.
It is important to note that the survey coverage in the Protocol applies to the lender only. The risks of survey coverage for the lender and the purchaser are different. The risk of actual loss due to survey or zoning impairment for the lender has been assessed to be minimal.
At this point in the development of the Western Torrens Project and the Protocol, survey coverage is not able to be extended to the purchaser. The purchase and sale contract between the Buyer and Seller is usually already executed by the time the lawyer is consulted. The warranties in the purchase and sale contract are such that there is an obligation by the Seller to provide the Buyer with a property that complies with the existing municipal land use bylaw and does not encroach on easements, rights of way or other lands. The real property report and municipal compliance certificate provide this information. Obtaining a real property report ensures that survey and zoning problems with the property are identified and fixed. Registrations will be made on title that accurately reflect the state of the property as is the intention of the Torrens system. An example of this would be an encroachment agreement. Problems are then not carried forward with the property to be solved at the time and expense of the new owner; or if title insurance is obtained, to be insured over in perpetuity. The Protocol provides that the lawyer provide advice to the purchaser about the benefits of obtaining a real property report or advice of other options such as title insurance. In the event that the purchaser declines these options, a sample waiver is appended to the Protocol.
Coverage for purchasers relative to the real property report and compliance is an issue still on the table for the Western Torrens Project. Stage One of the Project deals with the Solicitor’s Opinion for the Lender and title registration coverage for the purchaser. Stage Two will be investigating other possible solutions for the Purchaser.
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7. Consultation with the Real Estate Bar
The Legal Education Society of Alberta Banff Refresher Course Planning Committee recognized the importance of the Western Torrens Project to the future of real estate conveyancing and kindly invited the panel to introduce the Project to the real estate Bar in Alberta during the Banff Refresher Course. The Benchers at Convocation on April 6, 2000 approved of the Protocol in principle on several conditions including "subject to the acceptance of the Protocol generally by the real estate bar in the Province." The Banff Refresher Course on Real Estate is an opportune time to begin the consultation and receive input from the real estate Bar. A series of meetings are currently being organized by the Law Society of Alberta throughout the province for later in the spring for further consultation and input by the Bar.
We ask that you share these exciting new developments in real estate conveyancing with your colleagues, ask the many questions that you have and provide your input to us. The success and implementation of the Project depends on the participation by the real estate Bar and the ongoing dialogue between the real estate Bar and the Law Society.
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The Western Torrens Project provides an opportunity for solicitors involved in residential real estate conveyancing to expedite the conveyancing process for lenders, provide consumers with continued access to independent legal advice and ensure the integrity of the Torrens land registration system is preserved. The Law Societies involved in the Western Torrens project believe the public interest will be served by assisting lawyers to remain an active part of the conveyancing marketplace.
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