Why Title Insurance is Useful
What is Title Insurance?
Title Insurance is very useful that based on their study released in 2005, the Consumers Council of Canada (CCC) highly recommended that homebuyers and homeowners purchase it. It exists for both residential and commercial properties and can be purchased from your lawyer, title insurance company or an insurance agent. (See our Resources Links page for title insurance companies in Canada.)
As an insurance policy, it protects real estate property owners and mortgage lenders against losses relating to the property's title or legal ownership of the property. Unlike any other kinds of insurance that protect the policy holder against whatever unfortunate things that can happen in the future, title insurance insures you against unknown things that have already happened in the past, such as, building code violations, zoning infractions, title defects, existing liens on the property, as well as fraud, which can affect your ability to sell or refinance your home in the future.
Unlike house insurance, you only pay a one-time premium. There is no deductible. The cost/premium is usually determined based on the price of your home. Because it has only a one-time premium, it is considered to be the most inexpensive and effective way to insure your property against title fraud and other title-related issues. Especially if title fraud occurs, it can be very costly - financially and emotionally - for the homeowner to restore title. With title insurance, all legal expenses relating to restoring title are usually compensated for and coverage exists for as long as the insured owns the property. It has two main types:
- Owner's policy - Protects the property owner from issues indicated in the policy for as long as the property is owned (by the insured property owner). If an unknown title problem occurs after title insurance is purchased or the title is not as it is set out in the policy, the title insurance company will either "fix" the problem or compensate the owner.
- Lender's policy - Protects the lender from similar issues as the owner's policy and any losses should the mortgage of the property become invalid or unenforceable. It makes sure that no one else can make a claim on the property before the lender does if the owner stops making mortgage payments or defaults on the loan. It usually provides coverage equal to the amount of the mortgage itself.
Note: Usually, both the owner's and lender's policy are issued at the same time, if they are ordered on a purchase of a property. However, only the lender's policy is usually issued when the property is being refinanced.
What does it cover?
Title Insurance usually covers the following, depending on the policy of the title insurance company you choose:
- Unknown title defects (title issues that prevent you from having clear ownership of the property);
- Existing liens against the property's title (e.g. construction liens, the previous owner had unpaid debts from utilities, mortgages, property taxes or condominium charges secured against the property);
- Encroachment issues (e.g. a structure on your property needs to be removed because it is on your neighbour's property);
- Title fraud (or real estate title fraud) is a form of real estate fraud that harms individual homeowners and their lenders. Title fraud typically involves a fraudster using stolen personal information (identity theft), or forged documents to transfer your home's title to him/herself (or an accomplice), without your knowledge. The fraudster then gets a mortgage on your home and disappears with the money. If you are a victim of title fraud, you may be able to receive compensation for your losses if you submit a claim through the government's Land Titles Assurance Fund (LTAF). For more information on the Land Titles Assurance Fund visit www.gov.on.ca/LTAF/.
- Expenses incurred from Building Code violations
- Gap coverage - It insures for the "gap" between the time your property is purchased (home closing) and the time its title is registered, providing for smooth closings even for those which are done on the last minute. It enables your transaction to close before title is fully registered under your name at the Land Titles Office.
- Survey coverage - It most of the time eliminates the need for an up-to-date survey as most lenders accept it as an alternative to the survey itself or the Real Property Report (RPR).
- Errors/Defects in surveys, titles, public records; and other title-related issues that can affect your ability to sell, mortgage, or lease your property in the future. Title insurance will cover all legal expenses related to restoring your property's title, including your lawyer's negligence/errors related to title risks covered by the policy you signed for.
- Lack of marketability
- Condominium and builder's liens
- Work orders and deficiency notices
Title Insurance policies exists for both Residential and Commercial Properties. The following describes what they are and/or what they cover:
Residential Title Insurance:
Residential Title Insurance can be purchased by new homeowners, existing homeowners and mortgage lenders on residential properties. It can insure properties such as houses, condos, leased properties, vacant land, rural properties, cottages, rental units, and cooperatives. Although it is usually purchased when buying a home, you may also purchase it as an existing owner for your home, but the policy will be slightly different than the one you can have when you just purchased your property. Coverage will last as long as you own the property it covers. It may extend coverage to your heirs through your will but charges may apply.
Commercial Title Insurance:
Commercial Title Insurance policies are available for commercial mortgage lenders and individuals purchasing commercial properties. Commercial properties insured could be any of the following:
- Multifamily homes or rental properties that has more than 4 units
- apartment buildings
- leased commercial properties
- office buildings
- shopping centres
- industrial buildings
- warehouses
- vacant commercial land
Bear in mind that the Title Insurance Policy itself, only insures against, but does not solve the underlying problem(s) that may be found. It usually enables your transactions to close faster and cheaper. Before purchasing title insurance, you need to discuss the matter with your lawyer, title insurance company or insurance agent/broker, to fully understand what you are applying for, the type of protection it can provide, and to know if you have other options. Only then can you make an informed decision based on your situation. Title insurance is not a replacement for legal advice when you purchase a property.
