Title insurance is becoming increasingly popular in Canada, but what exactly is it? This article aims to provide you with some foundational information about title insurance as many lenders require it now. Because each situation is unique, it’s always best to discuss these types of matters with your lawyer.
Title to Property: Title refers to the legal ownership of a property.
When buyers purchase a property, they desire “good and marketable” title, meaning ownership that suits their purposes and can be transferred to someone else. Before the closing of a property, public records are searched to determine the property’s previous ownership and any related transactions. This search may uncover existing mortgages, liens for unpaid taxes, utility charges, and other claims registered against the property. During the closing, the buyer expects to receive a property that is free from such claims, which are typically resolved prior to closing. For example, the seller’s mortgage will be discharged, and outstanding expenses like taxes and utility charges will be paid or adjusted at closing.
Challenges with Title:
Sometimes, problems or defects related to title are not discovered or remedied before the closing. These defects can diminish the marketability of the property when the buyer decides to sell in the future and may also incur additional costs to rectify. For instance, a survey might fail to reveal that a dock and boathouse built on a river near a vacation property were constructed without proper permission. If the buyer is later required to remove the dock and boathouse, they would bear the expenses. In another scenario, the property might have been fraudulently conveyed to a previous owner, posing the risk of the real owner asserting their rights over the property at some point.
Who Is Protected with Title Insurance?
Title insurance policies can be issued in favor of the purchaser (for new or resale homes, condos, and vacation properties), the lender, or both the purchaser and lender. Lenders sometimes require title insurance as a condition for providing a loan. Title insurance safeguards purchasers and/or lenders against losses or damages incurred if a claim covered under the policy is made.
Common Risks Covered:
Title insurance typically covers various risks, including survey irregularities, forced removal of existing structures, claims arising from fraud, forgery, or duress, unregistered easements and rights-of-way, lack of access to the property (pedestrian or vehicular), work orders, zoning and setback non-compliance or deficiencies, and more. To be covered, a risk generally needs to have existed as of the policy’s effective date. Similar to other insurance policies, certain risks may be excluded, such as native land claims and environmental hazards. It’s essential to discuss with your lawyer the risks covered and those that are excluded.
Coverage Duration:
For title insurance covering the purchaser, the coverage remains in effect as long as the insured purchaser maintains ownership of the property. Some policies also extend protection to individuals who receive title due to the purchaser’s death or certain family members who may have acquired the property for a nominal consideration.
For title insurance covering a lender, the policy remains in effect as long as the mortgage remains on the property’s title. If a lender realizes on its security and suffers an actual loss or damage related to a covered risk, they are insured under the title insurance policy. Lenders are typically covered up to the principal amount of the mortgage.
Premiums and Payment:
The premium for title insurance is paid once, usually at the time of purchase. In Canada, it is generally the purchaser who pays for title insurance, although there may be situations where the seller covers the cost. Some policies automatically cover both the purchaser and lender, while others require a small additional fee for dual coverage.
Protection and Peace of Mind:
Title insurance can help ensure that the closing process is not delayed due to title defects. Furthermore, if any title-related issues arise concerning a covered risk, title insurance covers the legal fees and expenses associated with defending the insured’s title and provides compensation in the event of a loss.
