Title insurance isn’t the same as homeowner or business insurance, so what is it and why do you need it?
First, you’ll need to understand the term “title” to understand how title insurance works.
What is Title?
Title refers to legal ownership of land.
When you purchase a property, the land title is transferred from the seller to you.
Each “title” is entered into the Canadian government register through various local land title offices located across the country.
Title documents include the owner’s name, legal description, identifying parcel number, and known encumbrances and statutory restrictions on property use.
Relevant authorities update the land title register each time a change is made to the title.
What is Title Insurance?
Unfortunately, the land titles registry system and title documents aren’t error- or fraud-proof.
Problems can occur and some can lead to major losses.
As a result, separate forms of title insurance are available to protect property owners and lenders against potential losses associated with a property’s title.
These coverages are not one and the same.
One protects the lender while the other protects the property owner.
Lender Policy (Loan Policy)
Typically, most people come across title insurance when they’re buying a home.
Lenders often require it, because they want to protect themselves from risks when they issue a mortgage.
As a result, a lender policy is usually issued for the total amount of your mortgage.
Mortgage-free property owners aren’t obliged to buy a lender’s policy.
However, you may still want to buy an owner title insurance policy.
If your mortgage company requires a lender policy, you may want to add an owner title insurance policy too.
Why an Owner Policy is Important
Owner title insurance protects your interests.
It is not mandatory, but it offers good protection against many risks at a great price. Considering you only pay a reasonable one-time fee; it is well worth consideration.
It is not an ongoing expense.
An owner policy is usually issued for the total purchase price.
You can buy it at the same time you buy your property or any time thereafter.
Residential policies apply to houses, condos, rental or leased units, and cooperatives.
Title insurance is also available for commercial properties including office, retail, industrial, and apartment buildings, warehouses, and rental or leased commercial properties.
What Does Owner Title Insurance Cover?
Like any other insurance product, coverage depends on the policy.
However, all policies remain active as long as you own the property.
This coverage may extend to your heirs through a will, or to your spouse or children if you divorce.
Policies cover losses up to the stated limits.
Here are some of the most common coverages offered through an owner policy:
- Title issues that could prevent you from clear ownership of your property such as errors in public records or surveys.
- Disputes regarding the legitimacy of the property rights of a seller.
- Disagreements about the location of property lines.
- Discovery of undisclosed liens or lawsuits against the property.
- Encroachment issues not known at the time of the sale.
- Municipal by-law violations not known at the time of the sale.
- Zoning and setback compliance issues not known at the time of the sale.
- Legal access issues not known at the time of the sale.
- Illegal septic system problems not known at the time of the sale.
- Forced removal of unpermitted structures built by a previous owner.
- Lawyer errors, omissions, and negligence.
- Gap protection during the period between when you close your real estate deal and title registration.
- Legal expenses related to defending your title ownership.
- Title fraud.
Title fraud deserves an in-depth explanation.
It primarily occurs through identity theft when a criminal assumes your identity.
They may sell the property and abscond with the funds, or they may work with a lender or broker, place a new mortgage on your property, and keep the funds.
Meanwhile, you’re totally unaware the crime has been committed.
You’ve essentially lost your property and ownership rights, and you may have a new mortgage in your name too.
The Land Titles Office may reimburse you for your loss through their Land Titles Assurance Fund (LTAF).
However, you may want to speak with your lawyer or financial advisor to see if purchasing Title Insurance could mitigate the risk further.
What Doesn’t It Cover?
As mentioned, every policy differs.
Policies always have exclusions, restrictions, and specific terms and conditions. These are some of the most common exclusions:
- Known title defects before you bought your property.
- Environmental contamination
- First Nations land claims
- Bylaw violations caused by your actions
- Non-title related risks such as flooding, fire, sewer backup, poor maintenance, and theft.
Do I Really Need Owner Title Insurance?
An owner title insurance policy protects you against the costs involved in issues that can show up after closing a real estate deal or from title fraud.
Regrettably, title fraud is no longer a rare crime.
FCT, the largest title insurance company in Canada estimates mortgage fraud has cost Canadians over $100 million.
Other problems related to a property’s title can also be extremely costly.
Title claims can arise at any time, even if you’ve owned your property for years.
An owner’s title insurance policy may provide a cash settlement, pay off undiscovered liens, or help you defend against a lawsuit.
If you don’t have title insurance, you’re on your own.
How Do I Buy Title Insurance?
Title insurance is available through your conveyance lawyer, a private title insurance company, or your insurance agent or broker.
If you decide to go with a private title insurance company for a lender’s policy, it is important that you check with your lender first. They may only recognize policies issued from specific title insurance companies.
The following are the most well-known in Canada:
|Chicago Title Insurance Company||www.chicagotitle.ca|
|FCT Insurance Company Ltd.||www.fct.ca|
|Stewart Title Guaranty Company||www.stewart.ca|
How Much Does Title Insurance Cost?
The cost of title insurance depends on the value of your property, the insurer you choose, your province or territory, and your level of coverage.
As an example, it would cost approximately $225 in BC for a $1 million property, if you bundle both policies.
The lender policy costs $175, and the owner policy around $50.
These prices increase by about $1 for every $1,000 over the $1 million value.
However, these prices may vary greatly depending on the factors mentioned above.
You may pay more if you choose to buy policies separately too.
Lender title insurance isn’t optional when your mortgage company demands it.
However, owner title insurance is.
Nonetheless, the additional cost of this coverage may make it worth serious consideration.
Why risk bearing the cost of title issues when you can get this additional protection so affordably?