April 20, 2021 | Danny J. McMullen
As we all know, “title” means having legal ownership in a particular property. Therefore, it follows that when property is purchased, title is transferred, and the purchaser becomes the new owner of that property. However, problems can arise when instead of good title being passed, the purchaser inherits title which is a defective in some way and has deficiencies in the underlying ownership. How then do purchasers and lenders protect themselves in situations like this? This is where title insurance can provide assistance.
Simply put, title insurance is a type of insurance policy that protects property owners or lenders from possible defects in their ownership of title to the property. There are two main types of title insurance: an owner’s policy and a lender’s policy. In this blog post, we will explore the benefits and limitations of title insurance to a homeowner, and in a subsequent post, we will discuss why it is equally important for lenders to have a lender’s title insurance policy.
What is Title Insurance ?
As stated earlier, title insurance is an insurance policy that protects property owners when they purchase a property with defective title. This defect could range from liens, easements, title fraud, errors that would have been discovered in an updated survey, along with many other risks. Purchaser’s generally have two options to ensure good title on closing – the first is to rely on a lawyers’ opinion on title and the second is to rely on a title insurance policy. The vast majority of residential real estate purchases and many commercial real estate purchasers are now completed with the use of title insurance (which is generally a requirement of any new mortgage, in any event). The reason for this trend towards the increased use of title insurance has been driven in many ways by some of the unique attributes and benefits of title insurance, some of which are described below:
What are the Benefits of Title Insurance?
- One-time payment: Unlike other insurance policies, you only pay the premium once for a title insurance. It is paid at the time of purchase of the property.
- Duty to defend: A title insurance policy offers the benefit of defending the homeowner in a lawsuit over the property and will also reimburse the homeowner for expenses incurred.
- Registration Gap : Title insurance offers protection to the purchaser in respect of any new claims that may arise during the period between when a property purchase is closed and when it is registered with the government’s land registration system. Therefore, title insurance can ensure that there is no delay in closing a property purchase.
- Peace of Mind Assurance: One great benefit of title insurance is the assurance it gives a property owner who is content knowing that their title to the new property is insured and their interest is secured should any defect arise.
What Risks does it cover?
There are a number of risks a title insurance policy would protect a property owner from. Some of these include:
- Title fraud: this can occur when a purchaser’s personal information is used to transfer the title in the property and fraudulently obtain a mortgage loan.
- Title defects: this includes anything that would prevent the property owner from having an unencumbered interest.
- Errors made by a lawyer: Title insurance can also protect the property owner from losses that they may incur due to errors made by a lawyer as part of the purchase of the property.
- Easements and access: this refers to the right to use or access parts of the purchased property.
- Liens over the property: this could include unpaid taxes, maintenance fees, mortgages, outstanding utility bills, etc, of the previous owner
- Construction liens
- Zoning by-law violations
- Errors in surveys and public records
What risks does it not cover?
- Known title defects: this can occur when the purchaser is aware of defects and goes ahead with the purchase, regardless.
- First Nation land claims
- Environmental hazards such as soil contamination
- Problems discovered by a new land survey after the time of purchase
- Damages covered in a property owner’s insurance policy or home warranty : such as wear and tear, fire, flooding, etc.
Title insurance can be used for both residential and commercial properties. The Financial Services Commission of Ontario has a great brochure with tips to a purchaser and things to consider when purchasing residential title insurance here. Although a property owner is entitled to the benefits of title insurance as long as they own the property, it is also possible to extend the title insurance to a spouse or child who inherits the property after them.
How do I know if I need a title insurance policy?
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 a good solution to protect title to your property. Northview Law offers a free consultation available on this link or you can contact us at 416-639-7639 to discuss any questions you have about title insurance or other property related matters. We look forward to hearing from you soon.