If a buyer is considering purchasing a property which uses a well as it’s drinking water source, there are a number of careful considerations to keep in mind throughout the process.  Health Canada sets very restrictive guidelines about the content of drinking water.  Many lenders seek a water potability certificate, or other confirmation that the water is safe for human consumption, as part of their lending process.  In some cases, title insurance can be an option but each case is different.

The challenge that comes up on the legal side is where the lender requires the certificate and it has not been examined prior to subject removal (particularly the removal of a financing condition).  In the event a lender requires confirmation of water potability, two options may be available (although some lenders require one option or the other).   Firstly, a test can be completed on the water to analyze the content and determine whether the water sample meets the Health Canada requirements.  This would be at the cost of the buyer and would be completed by a qualified individual.  In other cases, the lender may agree to accept a lender policy of title insurance which includes a water potability endorsement.  Although the title insurance route may assist with the purchaser obtaining mortgage financing, on the other hand, not completing a test may put the buyer and/or their family at risk if the water is not compliant with the Health Canada requirements.  The Heath Canada Canadian Drinking Water Guidelines can be found here: http://www.hc-sc.gc.ca/ewh-semt/water-eau/drink-potab/guide/index-eng.php.

It is important to note that the title insurance would only step in to insure a loss or reduction with respect to the value of the property should the water not be potable.  It could not be used to pay expenses required to actually make the water potable.  Further, on a purchase transaction where title insurance is obtained, the water potability endorsement only covers the lender’s potential loss and is not available for the purchaser.

For mortgage brokers and realtors guiding their clients through the process, this can leave people in a bit of a predicament.  If a test is completed it would either, if compliant, be sufficient for most lenders (others just simply require the title insurance policy anyways) and, if not compliant, reveal any concerns with the drinking water.  Alternatively, the buyer can forego the test (assuming one is not already available) and the lawyer acting for the purchaser can obtain a title insurance policy with the water potability endorsement (if acceptable to the lender).  The challenge arises where a test is completed, either by the buyer or provided to the buyer by the seller, that shows the water is not compliant.  The buyer cannot then elect to order title insurance instead as there is already a water test completed revealing the non-compliance.

In cases where well water is involved, it is even more important to consult with a lawyer early in the process to avoid last minute issues with potability that will put the borrower at risk if he or she is unable to complete their purchase as their financing is no longer available.  Each situation is different and requires careful consideration.  That being said, it is much easier to deal with any issues before conditions have been removed and the borrower/buyer is locked into the contract to purchase the home.

Author: Una Gabie

This information is general in nature only. You should consult a lawyer before acting on any of this information. This information should not be considered as legal advice. To learn more about your real estate needs, please contact our office at (250)448-2637 or any of our lawyers practicing in the area of estate planning at the following:

Una Gabie: una@touchstonelawgroup.com

Jennette Vopicka: jennette@touchstonelawgroup.com

Danielle (Dani) Brito: danielle@touchstonelawgroup.com