Title Insurance – What It Is And Why You Need It

What Is Title Insurance?

For most of us, our home is our single biggest purchase. You have legal ownership of the property when the title to your home is registered on the government’s land registration system. Just because the title title to your home is registered, however, that doesn’t automatically guarantee that have clear and unencumbered ownership.

When you bought your home, your lawyer performed several checks and searches to determine whether the title was ‘clear’. Sometimes, however, things get missed either because the lawyer missed them or because the information wasn’t available. These can include:

• No survey available;
• Encroachment issues (e.g., part of your neighbour’s garage is on your property);
• Existing liens against the property (e.g., the previous owner had unpaid utility bills or property taxes);
• Unregistered easements or rights-of-way; or
• Unknown title defects or other title issues that may affect your ability to sell, mortgage or rent your home in the future.

Title insurance is an insurance policy that protects you against losses related to problems like these. There is a one-time fee (premium) based on the value of the property and the title insurance company you choose. You purchase the policy through your lawyer and the fee is generally a few hundred dollars.

The title insurance policy remains in effect as long as you own the home. It will cover losses up to the maximum set out in the policy and may also cover most legal expenses.

Is Title Insurance Required?

It is not mandatory to purchase title insurance in Ontario. However, most lenders require title insurance and so, if you need a mortgage, you will probably need title insurance. If you own a home and do not presently have title insurance, you can purchase it at any time.

What If There Is No Survey?

Before there was title insurance, lenders required an up-to-date survey of the property to approve mortgage financing. In the City of Toronto, however, an up-to-date survey is a rare commodity, and so the buyer or seller was forced to pay for a survey for the deal to close. Fortunately, most lenders accept title insurance as an alternative to a survey.

What Does A Title Insurance Policy Cover

In addition to the survey coverage described above, your title insurance policy can provide:

• Comprehensive insurance coverage against losses related to the property’s title;
• Coverage for your lawyer’s negligence or errors related to title risks;
• Coverage for most legal expenses involved in defending the title; and
• Money savings, as fewer checks need to be done by your lawyer. These savings can often be as much or more than the cost of the insurance premium.

What Is Not Covered By Title Insurance

Title insurance policies may have certain exclusions and exceptions that you need to be aware of. For example, your policy might not cover:

• Title defects that you knew about before you purchased the home;
• Environmental issues such as soil contamination;
• Native land claims;
• Problems that could only be uncovered by a new survey (i.e., no ‘survey clause’);
• Unrecorded liens and encroachments; and
• Zoning bylaw violations that you are responsible for creating.

You should review your title insurance policy carefully to ensure that you understand any such exclusions or exceptions.

What About Title Fraud?

Title fraud happens when a fraudster uses stolen or forged information to transfer title of your home The crook then mortgages the home and takes off with the money. If you are a title fraud victim, you may be able to receive compensation through the government’s Land Titles Assurance Fund – click here for more information.

Bottom line — you should definitely purchase title insurance for your home whether you need to or not!