April 23, 2021 | Danny J. McMullen
In our most recent blog post, we explored title insurance and its many benefits to property purchasers. In today’s post, we will discuss the importance of title insurance as part of a mortgage loan transaction.
As stated previously, title insurance is an insurance policy that protects property owners and lenders from possible defects in their title or ownership of a property. The two main types of title insurance are: owner’s policies and lender’s policies.
For a lender’s policy, the borrower is required to purchase title insurance to protect the lender so that if there is a defect in title to the property that could affect its mortgage or other security on title to the property , the lender is still protected against loss from title defects. These defects can take the form of liens, easements, title fraud, title defects and many other risks. It is important to note that a lender’s policy protects only the lender against these risks mentioned and only to the extent of the mortgage sum.
What are the Benefits of Title Insurance?
- One-time payment: Unlike other insurance policies, you only pay the premium once for title insurance. It is generally paid at the time that the mortgage is advanced or shortly thereafter.
- Duty to defend: Title insurance offers the benefit of defending the lender in a lawsuit over the property and will also reimburse the lender for expenses incurred.
- Peace of Mind: One great benefit of title insurance is the assurance it gives a lender who knows that its mortgage is secure and has priority claim in the event of any defect.
What Risks does it cover?
There are a number of risks a title insurance policy would protect a lender from. Some of them include:
- Title fraud: this occurs when the borrower or other owner’s personal information is used to transfer title to the property or a subsequent mortgage is registered without the borrower or owner’s knowledge.
- Title defects: this includes anything that would prevent the property owner from having an unencumbered interest
- Errors made by a lawyer: Title insurance can protect a lender from losses they may suffer due to an error made by a real estate lawyer at the time of the mortgage.
- Easements : this refers to the right to use or access part of the property
- Liens over the property: this could include unpaid taxes, maintenance fees, mortgages, outstanding utility bills, etc, of the previous property owner
- Construction liens
- Zoning by-law violations
- Errors in surveys and public records
What risks does it not cover?
- Known title defects: this occurs when the borrower or lender is aware of defects in title and goes ahead with the loan anyways – unless any such defect is specifically included in the policy as being covered.
- First Nation land claims
- Environmental hazards such as soil contamination
- Damages covered in the homeowner’s insurance policy or home warranty : such as wear and tear, fire, flooding, etc.
Generally, a title insurance can be used for both residential and commercial properties. Most lenders require a lender’s policy prior to advancing any mortgage funds due to the many benefits described above, although some will continue to accept a lawyers title opinion if they are sufficiently confident that there interests are sufficiently covered by such an opinion.
How do I know if I need a title insurance?
If you’re considering purchasing or refinancing your property, it is advisable to speak with a lawyer to determine whether a title insurance policy is right for you. Northview Law offers a free consultation available on this link or you could contact us at 416-639-7639 to discuss any questions you have about title insurance. We look forward to hearing from you soon.