Illustrative Scenario: Jordan — Title Insurance and Reporting Entity Questions | Frontier Law

Disclaimer: This scenario is fictional and for general information only. It does not constitute legal advice. Every situation is unique, and the information here may not apply to your specific circumstances. For advice tailored to your situation, consult with a qualified legal professional licensed to practice law in Ontario.

The Scenario

Jordan is buying a condominium in downtown Toronto. The purchase price is $750,000, and Jordan has arranged financing through a bank. The closing date is set for next week, and Jordan’s lawyer has been handling the transaction.

A few days before closing, Jordan’s lawyer calls to say that the title insurance company is requesting additional information. Specifically, they want:

Detailed information about where the down payment funds came from
Proof of identity for Jordan’s parents (who gifted part of the down payment)
Information about Jordan’s employment and income
Additional documentation about the source of funds

Jordan is confused and frustrated. They’ve already provided identification and financial information to their bank for the mortgage. Why does the title insurance company need all this extra information? And why do they need information about Jordan’s parents?

The Legal Issue Raised

This scenario raises questions about:

FINTRAC Requirements: What obligations do title insurance companies have under anti-money laundering legislation?
Identity Verification: Who must be identified in a real estate transaction, and why?
Source of Funds: What information must be provided about where funds are coming from?
Third-Party Information: When do third parties (like family members who provide gift funds) need to provide identification and information?

How These Issues Are Commonly Analyzed

When analyzing these issues, legal professionals and reporting entities often consider several factors:

Reporting Entity Obligations

Title insurance companies, as reporting entities under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, must:

Verify the identity of clients before issuing policies
Understand the source of funds involved in transactions
Keep records of transactions
Report suspicious transactions to FINTRAC
Report large cash transactions

Identity Verification Requirements

When verifying identity, reporting entities typically consider:

Whether government-issued photo identification is provided
Whether proof of address is provided
Whether additional documentation is needed for corporations or trusts
Whether third parties providing funds also need to be identified

Source of Funds Analysis

When analyzing source of funds, reporting entities often consider:

Whether the source of down payment funds is clear and documented
Whether gift funds are properly documented with gift letters
Whether the source of the gift giver’s funds needs to be verified
Whether the transaction appears consistent with the buyer’s financial profile

Third-Party Information Requirements

When third parties are involved, reporting entities often consider:

Whether the third party is providing a gift or a loan
Whether the third party’s identity needs to be verified
Whether information about the third party’s source of funds is required
Whether the relationship between the buyer and third party is clear

Why This Area Causes Confusion

This area of law causes confusion for several reasons:

Multiple Verification Points: Buyers often don’t realize that different parties (banks, lawyers, title insurance companies) may each need to verify identity and source of funds separately.
Third-Party Requirements: Many buyers are surprised that family members who provide gift funds may also need to provide identification and information.
Timing Issues: These requirements often come up close to closing, creating time pressure and stress.
Documentation Complexity: Understanding what documentation is needed and why can be confusing, especially for first-time buyers.
Perceived Redundancy: Buyers often feel they’ve already provided this information to their bank and don’t understand why title insurance companies need it again.
Lack of Awareness: Many buyers are not aware that title insurance companies are reporting entities with these obligations until they encounter the requirements.

Key Takeaways

Title insurance companies are reporting entities under FINTRAC and must verify identity and understand source of funds
These requirements apply even if information has already been provided to other parties (like banks)
When funds come from third parties (like parents), those parties may also need to provide documentation
Delays in providing required information can delay closing, which can have financial consequences
Planning ahead and understanding these requirements can help avoid last-minute problems
Different parties in a transaction may each need to verify information independently