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Mortgage Solutions for the every day Canadian mortgage consumer. Are you thinking about becoming a mortgage broker learn first hand what you should look for in a brokerage and what you need to be successful.
Len 00:02
Welcome, my name is Len Lane, and I am the founder and president of Brokers for Life Inc, and we are Dominion Lending Centres in Western Canada. The topic of our podcast will be about what we consider to be Real Life Mortgage Solutions.
Len 00:20
Welcome back. This morning we're gonna talk about insurance. Yes, I know half of you just left the conversation. But when you're buying a home, there are several types of insurance that need to be addressed. Default insurance is what is more commonly known as mortgage insurance, is CMHC, or Sagen and you have to buy home insurance obviously, to protect your property. We always talk about life and disability insurance through our MPP program. But the one that is probably not talked about enough is called title insurance. So, our guest today is Shauna Vandenbroek, Business Development Manager Residential Lending Solutions for FCT which is First Canadian title. Welcome, Shauna.
Shauna 01:02
Thank you so much for having me, Len. I’m really excited the idea behind this podcast bringing that digital connection and education into the broker world. FCT, we really value having lending partners like you, DLC Brokers for Life, really helping us share out these educational pieces into the market. Lots of value been having those strong relationships with industry partners for your business as a mortgage broker. So, I really appreciate the partnership that we have and you bringing me in today, hopefully our chat is going to bring some value to everybody listening in.
Len 01:34
Yeah, I'm happy to have this one in here because I know FCT does a great job with our clients. So, why don't we start with what exactly is title insurance? And why does it exist?
Shauna 01:44
Absolutely. So, like you said, insurance is plentiful during that mortgage transaction. Title insurance is the one people know the least about, but it is really such a valuable tool to have in place. So, what is title insurance? Your clients and borrowers, they're asking the same question and they're going out and educating themselves. They're on social media, they're using Google, our research shows that online searches for, what is title insurance, what does insurance cover? Who is FCT? Back in 2020, that was happening about 800 times per month, and in 2023 that was up to 11,000 times per month. Absolutely wow. The conversations are getting out there and clients are getting themselves educated. So, the more educated we are on this side, we can continue that conversation and answer those questions for them. So, title insurance, we're really that's just a unique type of insurance, we're designed to protect risks related to the title of the land. So, unlike traditional insurance, which protects risks that might occur in a future state, title insurance protects from risks that are present, but from the past. So, things that are unknown, but currently exist. And those tend to present themselves in a couple of different ways. So, when they're on title, we see them as liens, judgments, notices, security interests, sometimes a name mismatch, we'll see them as off-title items that might show up later after a possession. So, sometimes tax or utility arrears that don't get posted to title until after possession. Lack of building permits is a really big one. And then there's our transactional ones. So RPR surveys and fraud, of course fraud. The risks that we cover with title insurance, they're not mitigated by other types of insurance and that can be really costly and concerning for property owners. In Alberta, our claim average was almost $30,000. And without having title insurance in place, they'd be out of pocket for those costs. So, considering it's a one-time premium to protect for the lifetime, that you have the interest in the property, as long as you own that home, it really gives you that kind of sleep at night kind of peace of mind protection.
Len 03:51
So, the coverage remains with the property as long as you own it?
Shauna 03:56
Absolutely. Yeah.
Len 03:57
That's excellent. I didn't realize that, because the mortgage term ends at the end of five years in 99% of the cases, right? So, as they renewed with another, maybe with another lender, then they don't worry that the title insurance didn't change. So–
Shauna 04:10
For the homeowner policy, absolutely. So, that's a really good point that you lead us into there Len, two different types of policies.
Len 04:18
Thenone that I don't think most people don't realize they can have. Is that second policy where it's the homeowner one, so maybe explain that one.
Shauna 04:27
Absolutely. So, two different types of policies, homeowner and lender policy, they each have a purpose, but they are very separate, they do not cover each other as the beneficiary. And also important to note the policies and coverages are different between residential and commercial properties. So, today, we'll just kind of focus on that that residential conversation. So, my role as the BDM lending solutions with FCT I support mortgage brokers with the mortgage closing solutions, including the lender policy, so we'll start on that side. As our lender policy is so strong, over 85% of all mortgage commitments from lenders will condition to have title insurance in place to protect that lender security as it relates to that mortgage loan financing. And that's whether you're closing with a solicitor for a purchase or a refinance, or if you're closing directly through us for a non purchase transaction.
Len 05:19
It’s the one policy, the one thing in the commitment that I've had more than I don't know how many people tell me I don't want that insurance, and I’m going like, well, it's not an option. It's the lender requires it, right? So, yeah, and that's usually a good time to say, well, when you get to the lawyers, you can ask them about the homeowners policy as well.
Shauna 05:38
And the lender policy is beneficial for you as a broker as well, like it actually helps offset a bunch of the other broker conditions that you'll see on those commitments sometimes. So, if we think about like a refinance, or a switch transaction, if you're seeing that condition for water portability, septic coverage, the clients lived in a property, they're usually pretty comfortable with how the waters functioning in the property, they don't want to have to go through the cost, time, and effort of doing inspections, getting certificates just to have a condition met for financing. So, title insurance will actually come in and let the lender know that we don't, we're going to cover over that condition. So, if something were to pose itself as a problem in the future, we would step in to financially make sure that the lender is not going to take on that risk. So, we don't actually have to go through the testing, getting certificates.
Len 06:27
And the water portability, I have a good fortune with one of my realtor friends who does a lot of summer residents, right, and water profitability always comes up. And I usually some of the lenders will ask, we actually go get the task, but I usually precede that with in the in the notes to them asking that we get the title insurance for the well as well.
Shauna 06:50
Yeah, in lieu of. Absolutely. But another common one that seems to be coming up a lot in Alberta is notice of security interests. So, when brokers are pulling title as part of their application and due diligence they're seeing sometimes furnaces, hot water tanks have those leasing programs, solar panel financing programs, these type of programs, those companies are now registering themselves on title as a notice of security interest. While those programs are outstanding. Typically, in the past, when we see those, you've got your two options to pay out and discharge it or to apply to them for a postponement so that the new financing you're doing remains in that first charged position protecting the lender, right? What title insurance is now doing our underwriters are noticing this is a trend. So, we've looked at some of those big companies that are doing this frequently. And depending on the dollar value, the company that's put it in place and the purpose of that notice of security interest, again, we wrap our title insurance around it so that no action needs to be taken. We don't have to go through the potential delays of having to work with a third party company to get a postponement, the cost of doing the postponement paperwork, we step in and say, okay, lender, we're good to go. If something were to pose as a risk in the future, we need to make a claim, you will still be treated as if you were in first charge position, we will get rid of that noise that sitting in front of you on title. The
Len 08:14
The furnaces are probably one of the biggest ones we see. Because I guess when you think about it, they don't really have many other options to protect their loan. Right? Because the house, it’s attached to the house. So, I guess it makes sense that they do that. But we do see that one quite often so. So, common coverage among all of the coverage, fraud is probably one of the biggest ones that you see. I would think.
Shauna 08:37
Before we roll into that, do we want to talk about the homeowner policy a little bit as well, just as a contradiction to that lender policy?
Len 08:44
Yep, we can do that.
Shauna 08:45
So, separate from that lender policy that we've been talking about that homeowners policy. So, this is one that's usually obtained at the time of purchase but can be bought anytime during ownership. So, if it's come up during your renewal conversation or a refinance, that it's not in place, they can always come to FCT.ca. And we can go through that process to quote and get one set up for them. It is a one-time premium to purchase. And it will protect that homeowner from any financial loss with no deductible if a claim ever needs to be made. Purchase transactions in Alberta, you have two options to close those deals either through title insurance, or what's called western protocol. Title insurance is not mandated in Alberta, over 50% of deals still closed under Western protocol, which really only protects the lender and homeowner from Gap coverage. It's it's kind of like a band aid on a bullet when when we really look at the the risk for the consumers and the ownership.
Len 09:39
It’s the Law Society has put that in place many years ago, correct? And they're always when I see a real estate lawyer, that's always one of the questions. So, what do you think of title insurance? And obviously, it has a purpose, but they seem to think that Western protocol was the best bet. So, can a client add this to their property after they have possession?
Shauna 10:04
Absolutely, yeah, it's it's more cost efficient and and easier to add during the transaction. But at any time, they can reach out to us and we can look at doing a quota to put a policy in place after possession as well. So, just in comparing to Western protocol, like 52% of the claims we process can't be identified by a solicitor's opinion, which is the solicitor doing their review, their conveyancing everything through Western protocol. So, over half of our claims wouldn't be covered by that solicitors opinion. 69% are actually due to building permits, lack of building permits, which would never be known by a solicitor. 11% is those tax arrears and utility claims. Again, if it's not showing on title, the solicitor can't comment to it. So, there's those key differences when a solicitor is closing without title insurance for the homeowner.
Len 10:56
Those are pretty obvious ones, I guess, if you will, the tax bill, which we usually do for clients, arrears would definitely show there, so they can't see that if it's not on the title?
Shauna 11:07
If it’s not registered on title, exactly. And even things that are there, like if we compare and RPR, for example, those surveys, we put a lot of value on having those are PRs and things so that we can know what's on the property. But as soon as we know that it's there, what options do the clients have to remediate it? Right? If there's title insurance, we're insuring the risk of what's unknown. But when it does become known, we're giving you that path of recourse, we can provide that financial settlement, the permits, corrected work agreements, all those things that have to happen to correct the issue, that just an RPR solicitor's opinion isn't going to give you, they're going to give you the knowledge but not the recourse to move forward on it.
Len 11:51
So, all they're really doing is speeding up the process with Western protocol, but not necessarily covering all the issues. Yeah. Interesting. Common coverage, among all is fraud protection, obviously, let's talk about all the other components like type, frequency, impact.
Shauna 12:11
Absolutely, yeah. So, like you said, the one big component of title insurance is that fraud coverage. And that comes into play both on the lender policy as well as the homeowner policy. So, different types of fraud exist on a mortgage transaction, the first being that application fraud. So, sometimes there's schemes to try and obtain a mortgage from a lender under those false pretenses. So, whether that's a fraudulent ID, whether that's income documents, different verification things that you guys are so skilled, and have the resources to be able to kind of weed through all of those. Sometimes we still see value fraud coming into play as well. Lenders led to believe property is worth more than it really is. So, there's misrepresentation of property attributes and the value. So, if you're using like an automated AVM, or a flex appraisal, there isn't a physical appraiser going out to look at that property. Sometimes there's still a little bit of stuff happening in that space. And then we have title fraud. So, title fraud occurs, ownership or title of property is fraudulently changed, sometimes document forged, allowing fraudsters to illegally sell or refinance a property. And we're really seeing this on the rise of Ontario, BC and Alberta as well. They're not necessarily going for the most amount of money, they really want these deals closed quickly. They want to get in and out. They don't want to get caught. Title insurance, we're really only covering that third option. So, the impacts of title fraud, the fraud on the title, so if there's an impact to the ownership or the enforceability of a mortgage, title insurance will will step in to help with that remediation. Other types of fraud, that's where you have the legal mitigations and other things that you'll sometimes see come into those conversations.
Len 13:55
We have caught several title frauds over the years. And it's just the conversation with my aunt, just a couple of weeks ago, was somebody suggested that they always have something have a mortgage on their title, but they what they were talking about was exactly that having at least a HELOC or something on your title so that somebody has to call you to take out the mortgage or to take over.
Shauna 14:18
Yeah, even when I was a lender that was a conversation that I was having with clients, right as part of that financial literacy and that value that you're bringing to that conversation. Why you want to have at a minimum a zero balance HELOC because it adds that layer of fraud security, nobody can apply or put something on your title without that lender having to reach out to you for confirmation and a discharge first. Yeah, absolutely. So, frequency like we're still seeing it quite a bit in the market. We are the only title insurer in Canada that maintains our Certified Fraud examiner's on staff that look at every single transaction that comes across our desks. Last year alone, we observed over $539 million in suspicious transactions that were presented to our teams. Staggering numbers, right? The fraud continues to grow, we have a concerning amplification in that risk. So, we had five times more claims cases opened and 100 times more suspicious transactions between 2018 and 2023.
Len 15:20
Why do they think that is?
Shauna 15:23
Various reasons. Technology is a big one of those the way that AI deep fakes all those different things are starting to come into the conversation. Can't really dispute, only technology can fight fraud that's created using technology, there isn't really an another way. With the digital frauds, those traditional steps that you guys are going through, it's not always enough anymore, right? So, it's more important than ever, make sure that you're partnering with a fraud expert like FCT so that we can help you guys protect the lender, protect a client, protect yourselves and your reputations as mortgage brokers.
Len 15:58
And I was just reading this morning in Mortgage Logic News, that FCT has a identification system that they've put in place as well.
Shauna 16:08
Absolutely. So, good to bring that up. It's a new technology software that we've launched with our solicitors and the offices that have signed on board as an additional layer of verification for the identification, the ID pieces. So, there's a whole nother conversation we could have on that. But it just really goes to show we are listening to the needs and the ever changing environment in financial services. And we're creating these technologies and solutions to try and keep up with that and help you guys do your jobs better.
Len 16:41
Title insurance on on the broker side, right? So, we're obviously partners with you in a couple of programs, DLC have an exclusive one, I believe. Maybe talk more about how that has come to be?
Shauna 16:55
Absolutely. So, further to just the title insurance. Our FCT's mortgage closing solutions are really a key offering for brokers, mortgage professionals, that alternative to using a solicitor to facilitate your transactions that don't need that legal expertise and conversation on them. So, specifically with those non-purchase transactions. So, when you have a renewal, if you're looking at a transfer or collateral switch or a refinance. We support your customers, we really save them money, we complete all that legal paperwork aligned to the title instead of paying a legal professional to do that work. We know most lenders are conditioning to make sure that title insurance is in place on that commitment. Well, you know, I think it was over 85%. So, you're already one step ahead by using FCT to do the closing with you, the lender policy's already included in that program. So, there's no additional costs, reducing closing costs for your clients. So, you can quote them that fixed fee up front, there's no surprises as they're going through the transaction of trying to guesstimate what a solicitor's cost might be at the end of the day.
Len 17:59
Right? Yeah. And a couple of the bigger banks actually have a program where they kind of reimburse them for that as well. Because of the..
Shauna 18:07
Yeah, every lenders got different programs for what they cover, how they package it together. Absolutely. Yeah, and using these the direct program with FCT, it really gives you that single point of contact. So, you get to be the one facilitating the dialogue, setting those client expectations to really facilitate that trust and confidence in your relationship with them as that professional for their mortgage transaction. You don't have to risk any advice or conversation that you have potentially being maybe overshadowed or challenged by a solicitors opinion when they go in to sign the documents with them. Because with our program, we do have our network of signing agents. So, we've got Commissioner voce notaries across the country. They allow us to meet clients at their homes, at their convenience to sign any documentation that's needed. Like I said, rather than having to go into those solicitor offices. New programs being launched, we were talking about the the ID verification for solicitors, we have our new e-signing software and technology. So, there are some transactions which we can now close with a virtual signature as well. It's a big change that we're trying to get rolling out with land titles across the country to add to that client experience and convenience overall.
Len 19:21
I'm actually seeing it now on commitments where it says that virtual signing must be approved. So, I'm assuming that they were talking about your program?
Shauna 19:34
Yes. Not all lenders have rolled it out yet. There are some lenders that have started rolling, we have a buy in from the majority that are going to be rolling it out in due time. But it is something that because it's out of the standard process, your underwriter still needs to review and approve whether this transaction would qualify for that process. And further to that you as the broker and the relationship holder, you get to qualify which client Do you think are a good fit for that program. We know certain demographics, certain clients, they may not want to have that digitized experience, they would get more value out of seeing a physical person come in and meet with them to sign those documents. So, you get to be the one that decides just because we've offered it doesn't mean that you need to utilize it depending on your client.
Len 20:19
So, yeah, I was always impressed that you had people just about anywhere that were able to go do the signings in Fort McMurray, Grand Prairie ,clients all over the North Country. And pretty much just about everywhere there's somebody available to do that with FCT. So, that that's pretty impressive.
Shauna 20:36
Absolutely, yeah, we have a pretty broad range of coverage for our network. And for areas that we don't, or for clients that aren't able to necessarily come for those appointments, we do have a remote signing option as well. So, we can courier them the documents, hold a virtual appointment. So, we still get to witness those ink signatures. And then we have couriers go and pick up those documents to bring them back to us for verifications and filing with land titles for funding. So, there's various levels of service and options that are available so that we can really customize the experience and make sure that we're helping get your files to close.
Len 21:12
It's the good insurance that should be talked about more. You're wondering if all of the other insurances that are good as well, they all have their purposes, but nothing more important than protecting that title believe it or not. It's said the fraud levels are increasing every day and the technology has gotten so good. The ones we have seen have been on with older couples as well. That seems to be a trend there for a couple of years. You know, they are watching very closely. And of course, if you have a lion on your front step, that means your house is paid for so maybe not always a good idea to put that out there.
Shauna 21:50
Yeah, those old traditions paint the door red. Right?
Len 21:54
Right, Shauna, thank you very much for your time today. It's always good to do a little more education, especially on things like title insurance that are so important to protect our clients. So, thanks for your time today.
Shauna 22:06
Absolutely. Thank you so much for having me, Len, I really appreciate you partnering with us to get more of this education out to the broker network in the world at large.
Len 22:15
Have a great day.
Len 22:17
Thanks for listening today. I hope you found the information that we provided to be useful in your mortgage journey. And remember, you can always find our associates at www.brokersforlife.ca/associates. Have a great day.