Mortage Outsourcing and Its Impact on Real Estate Practitioners
by Peter Shrimpton & Ron Morin
“In refinancing transactions such as second mortgages, lawyers have been all but eliminated from the process.”
So intoned the fascinating and insightful “Consultation Paper on Private Title Insurance” issued by the Manitoba and Saskatchewan law reform commissions in a 57-page report last year, which should be required reading for all B.C. real estate practitioners. What is occurring in the Prairie provinces is certainly being replicated here (see www.gov.mb.ca/justice/mlrc/reports/mb-sk-consultation_paper.pdf).
We believe that the role of lawyers and the provision of legal advice must be integral parts of the mortgage preparation, execution and registration process. To that end, we proposed certain resolutions at the Law Society AGM last September, which were passed by a majority of members who voted.
A Task Force was struck and is expected to make recommendations to the Law Society Benchers in the next few weeks.
The resolutions and our own detailed submissions to the Task Force relied to a large extent on discussions with dozens of fellow real estate practitioners involved in the recently created RELAN Real Estate Lawyers and Notaries Association of B.C. Besides the novel idea of collaborating with members of the Society of Notaries Public, RELAN’s objectives include “safeguarding the integrity of our land title system and the best interests of consumers by promoting high standards of legal and notarial services for residential real estate conveyancing” and “promoting the advantages to consumers and lenders of using the services of residential real estate lawyers and notaries public in B.C. versus alternate legal services providers such as title insurance companies.”
Most real estate practitioners identify title insurance as a low-cost replacement for surveyors’ location certificates, as required by lenders.
Some other uses are for commercial transactions involving American parties accustomed to title insurance, or to cover the risks of statutory liens. However, our principal concerns and the gist of our submissions to the Task Force relate to the role of title insurance companies in many lenders’ contracted mortgage preparation and registration processes.
Currently, many thousands of mortgages are submitted monthly for registration in B.C. by two law firms comprised of just one or two lawyers. Their dozens of staff prepare and register the paperwork for two of the principal title insurance providers in B.C. The mortgages are then sent to the financial institutions where the borrowers attend for execution.
To fulfill the Land Title Act requirement that an authorized signing officer witness the signatures, lawyers (very few notaries participate in the programme) on contract to the title insurance companies stop in at the financial institutions for witnessing purposes. These lawyers are not permitted to give legal advice pursuant to the programme, although the right to ILA is apparently explained to the borrowers. Mortgage funds are usually able to be advanced immediately upon execution, as the title insurance would cover any problems arising before registration.
Real estate practitioners in B.C. have therefore experienced an evaporation of their re-finance work, and borrowers appear not to be receiving the benefit of legal advice for these transactions. We hope that the Task Force report and subsequent action by the Benchers will squarely address the issues arising from the role now played by title insurance companies in refinancing transactions.
This article was published in the April 2006 issue of BarTalk. © 2006 The Canadian Bar Association. All rights reserved.