In today’s real estate environment, there can be many unforeseen factors that can affect the future marketability of your title. These include fraud, forgery, zoning by-law infractions, and discrepancies not revealed by a property survey. In addition, errors and oversights may occur, which could also jeopardize title. These issues may only come to light later, when the property is being resold or refinanced. The resultant solutions can often become complex and costly. Protection against such complications has been offered in the United States for over 100 years in the form of title insurance, and now, many companies brings this coverage to a growing Canadian market with Title Insurance. Title Insurance provides full protection against title problems. So, what is Title Insurance?

The Coverage

Title Insurance provides the purchaser and the lender with comprehensive no-fault protection against title risks inherent in real estate transactions, including:

  • Defects in title to the property
  • Unmarketability of title
  • Liens on the property
  • Encumbrances and their priority
  • Survey errors
  • Adverse claims to property
  • Fraud and forgery
  • Invalidity or unenforceability of the insured mortgage on title
  • Authenticity of registered documents on title
  • Forced removal of structures on the insured property
  • Known risks which can be added to coverage to facilitate the transaction
  • Other matters specified in the policy
  • Legal services provided by the lawyer with respect to the insured property*

*legal services coverage is only available for certain title insurance programs

The Title Insurance policy guarantees that the insured owner or lender has a direct claim if the specified title risks cause a loss, regardless of the source of the loss, and without any requirement to prove negligence. In addition, depending on the title insurance program, the Title Insurance policy can be tailored to suit the particular needs of the insured, either as stand-alone coverage or in conjunction with other real estate-related insurance products.

Why Get Title Insurance?
Protection from financial loss In any real estate transaction, a great deal of trust is placed in lawyers and their staff. Despite the dedicated efforts of these real estate professionals, it cannot be automatically assumed that every potential problem threatening a title will be identified. Should title problems subsequently surface, the courts will not necessarily hold the lawyer liable for what might be determined to be an unavoidable oversight – an unfortunate result. Title Insurance, however, responds even to the unavoidable oversight, and can either rectify the problem or, if a loss is sustained, protect the insured owner or lender up to the full amount of the policy.

Title is the legal term for ownership of property. Buyers want “good and marketable” title to a property – good title means title appropriate for the buyer’s purposes; marketable title means title the buyer can convey to someone else. Prior to closing, public records are “searched” to determine the previous ownership of the property, as well as prior dealings related to it. The search might reveal, for example, existing mortgages, liens for outstanding taxes, utility charges, etc., registered against the property. At closing the buyer expects property that is free of such claims, so normally they must be cleared up before closing. For example, the seller’s mortgage will be discharged and outstanding monetary expenses (such as taxes and utility charges) will be paid for (or adjusted for) at closing.

Sometimes problems (or defects) regarding title are not discovered before closing, or are not remedied before closing. Such defects can make the property less marketable when the buyer subsequently sells and, depending on the nature of the problem, can also cost money to remedy. For example, the survey might have failed to show that a dock and boathouse built on a river adjoining a vacation property was built without permission. The buyer of the property could be out-of-pocket if he is later forced to remove the dock and boathouse. Or, the property might have been conveyed to a previous owner fraudulently, in which case there is the risk that the real owner may come forward at some point and demand their rights with respect to the property.

Advantages of Title Insurance
The advantages offered by Title Insurance are considerable and include:

  • no-fault recovery of losses;
  • the payment of all related claim costs;
  • broad coverage including title defects resulting from negligence of the lawyer;
  • a reasonable one time premium;
  • timely closings; and
  • the flexibility to arrange special program coverage not available elsewhere in the market.

Who Benefits From Title Insurance?
Title insurance policies can be issued in favour of a purchaser (on new/resale homes, condos and vacation properties), a lender, or both the purchaser and lender. Lenders will sometimes require title insurance as a condition of making the loan. Title insurance protects purchasers and/or lenders against loss or damage sustained if a claim that is covered under the terms of the policy is made.

Types of risks that are usually covered under a title insurance policy include: survey irregularities; forced removal of existing structures; claims due to fraud, forgery or duress; unregistered easements and rights of-way; lack of pedestrian or vehicular access to the property; work orders; zoning and set back non-compliance or deficiencies, etc. For a risk to be covered, generally it has to have existed as of the date of the policy. As with any type of insurance policy, certain types of risks might not be covered, for example, native land claims and environmental hazards are normally excluded. Be sure to discuss with your lawyer what risks are covered and what are excluded. The insured purchaser is indemnified for actual loss of damage sustained up to the amount of the policy, which is based on the purchase price. As well, some policies have inflation coverage, which means that if the fair market value of the property increases, the policy amount will also increase (up to a set maximum).

– The Owner

  • Protection is provided from financial loss due to covered claims that may be asserted against the title to the insured property – up to the face amount of the policy;
  • Payment of legal costs is included if Title Insurance has to defend the owner‘s title against claims. These expenses don’t reduce the amount of policy coverage;
  • Payment of successful claims against the title to the property is covered by Title Insurance, up to the face amount of the policy

– The Lender
In addition to the aforementioned title coverage provided to the owner, Title Insurance Lender Coverage ensures the validity and enforceability of a lender’s security interest as well as its priority position. It further provides for protection of assignees of the lender’s security including mortgage loan insurers. Title Insurance Lender Coverage can be specifically designed to meet a lender’s special needs. It is especially suited to the new housing and condominium market, where it not only provides cost effective and comprehensive title protection, but, in conjunction with other development-related insurance products, it provides the insured lender and developer with a distinct advantage in the marketing and promotion of their financial products and developments.

– The Lawyer
Title Insurance replaces the lawyer title opinion, usually received by the client (owner or lender). Instead, the lawyer works with the insurer to underwrite the title and provide the client with a Title Insurance policy. In the event of a problem, the insured owner or lender looks to Title Insurance for no-fault title protection. As a result, the client no longer has to be concerned about negligence or oversights, thus preserving the solicitor / client relationship.

How Long Is The Insurance Coverage?
In the case of title insurance covering the purchaser, title insurance remains in effect as long as the insured purchaser has title to the land. Some policies also protect those who received title as a result of the purchaser’s death, or certain family members (e.g., a spouse or child) to whom the property may have been transferred for a nominal consideration.

In the case of title insurance covering a lender, the policy remains in effect as long as the mortgage remains on title. A lender covered under a title insurance policy is insured in the event the lender realizes on its security and suffers actual loss or damage with respect to a risk covered under the policy. Lenders are usually covered up to the principal amount of the mortgage. The premium for title insurance is paid once (at the time of purchase). Generally speaking, in Canada the purchaser of the property pays for the title insurance, though there can be situations where the seller pays for it. Some policies automatically cover both the purchaser and lender; others will cover both for a small additional fee.