Title Insurance: What is it and What Does it Cover?

Title Insurance: What is it and What Does it Cover?

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    Published 18/06/2021 12:06 EST
    Updated 14/07/2021 12:07 EST

    Buying a home is a huge deal and one of the largest financial commitments you’ll ever make. Purchasing title insurance is an important step in the homebuying process as it helps protect you as both a homebuyer and existing homeowner.

    Key Takeaways
    • Title insurance is a certificate that’s distributed by a title insurance company to guarantee a homebuyer’s legal safety against errors in the title search
    • Title insurance ensures that no other mortgages can be registered without acknowledgment and permission from a lawyer and the financial institution that holds the mortgage
    • While title insurance isn’t a requirement across Canada, it’s recommended to help protect you as both a homebuyer and existing homeowner

    What is title insurance?

    Title insurance is a certificate that’s distributed by a title insurance company to guarantee a homebuyer’s legal safety against errors in the title search. It also ensures that no other mortgages can be registered without acknowledgement and permission from a lawyer and the financial institution that holds the mortgage.

    Do I really need title insurance?

    While title insurance isn’t a requirement across Canada, it’s recommended to help protect you as both a homebuyer and existing homeowner. The decision on whether to purchase title insurance should be discussed with your lawyer, title insurance company or insurance agent/broker to fully understand what type of protection title insurance can provide you. Once you have all the facts, you can make an informed decision based on your specific situation and needs. 

    Important

    Title insurance doesn’t replace legal advice when purchasing property

    What does title insurance cover?

    Title insurance provides protection against financial losses resulting from fraudulent activities, title defects or claims against the home. The insurance premium is a one-time cost, which varies based on the value of the property, and is usually arranged through a lawyer or the title insurance company itself.

    Common types of coverage include: 

    Title Risks

    • Title fraud caused by forged or flawed documents
    • Previous owner not properly discharged from title
    • Existing liens 

    Non-Title Risks

    • Encroachment issues
    • Zoning and bylaw violations
    • Claims from builders
    • Unpaid property taxes from previous owner

    Title insurance protects homeowners and their lenders. Homeowners are protected for as long as they own or have an interest in the property, and lenders are covered for as long as the mortgage exists. 

    Exposure to risk in the event of a title defect could result in considerable legal costs, time and stress. This is especially true in duty to defend cases where the homeowner is challenged on the legitimacy of their title, which could, in turn, affect the enforceability of the mortgage. Title insurance provides peace of mind in knowing the right to ownership will be defended and title-related issues will be resolved. 

    What does title insurance not cover?

    When purchasing title insurance, it’s important to read the policy and ask questions to be aware of the coverage that’s provided – and isn’t provided.

    You also need to be aware of possible exclusions, which can include:

    • Known title defects (that were revealed to you before you purchased your property)
    • Environmental hazards (eg, soil contamination)
    • Native land claims
    • Problems that would only be discovered by a new survey or inspection of your property (eg, the property is smaller than originally thought)
    • Matters that aren’t listed in public records (eg, unrecorded liens and encroachments)
    • Zoning bylaw violations from changes, renovations or additions to your property or land that you’re responsible for creating

    Title insurance also doesn’t provide compensation for nontitle related issues. In other words, title insurance isn’t a home warranty or home insurance policy, which means it won’t provide compensation for such things as damages due to flooding, fire or sewer backup, general wear and tear of your home, theft or other losses or damages due to nontitle-related issues.

    👆 Tip

    Mortgage fraud is the deliberate misrepresentation of key information in order to obtain mortgage financing and title fraud occurs when the ownership of a property is compromised.

    What is title fraud?

    Title fraud occurs when the ownership of a property is compromised. This can include fraudsters using stolen personal information or forged documents to pose as the rightful homeowner, allowing them to arrange a new mortgage, use the home’s equity or even sell the home outright.

    Types of title insurance

    There are two main types of title insurance policies – an Owner’s Policy and a Lender’s Policy. 

    An Owner’s Policy protects the property owner from various title-related losses that are listed in the insurance policy for as long as the property is owned. An owner’s policy sets a maximum amount of coverage.

    A Lender’s Policy protects the lender from losses in the event that the property’s mortgage is invalid or unenforceable. A lender’s policy usually provides coverage for the amount of the property’s mortgage. 

    What types of property can be insured?

    Title insurance can be purchased for both residential and commercial properties. 

    Residential title insurance policies can insure:

    • Houses
    • Condos
    • Cottages
    • Rental units
    • Cooperatives
    • Leased properties
    • Rural properties 
    • Vacant land

    Commercial title insurance policies can insure:

    • Apartment buildings
    • Office buildings
    • Industrial buildings
    • Shopping centres
    • Rental units
    • Warehouses
    • Vacant commercial land
    • Leased commercial properties 

    What is residential title insurance?

    If you’re planning to buy a home or condo – or even if you already own a home or condo – you may want to consider purchasing residential title insurance to protect your property. 

    Residential title insurance can provide: 

    • Comprehensive coverage – Protects against losses related to the property’s title. It may also provide coverage for your lawyer’s negligence or errors relating to title risks that are covered by your policy. 
    • Gap coverage – Insures you for the “gap” between the time your property purchase is finalized (closing day) and the time your title is registered in the provincial land registration system. 
    • Survey coverage – This may eliminate the need for a new up-to-date property survey. It’s acceptable to most lenders as an alternative to a survey or Real Property Report (RPR), which can save you both time and money.
    • Legal coverage – The title insurance company will pay for most legal expenses involved in defending your home’s title.
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