Depending on your circumstances and your transaction, title insurance may be right for you and you should discuss this with your lawyer. You need to know if you should get in, do you need it and what it is exactly as it is growing in popularity in Canada. Here is an article that may help with some of that information necessary to make an informed decision.
Title to Property
The legal term for property ownership is “Title “ . Good title represents a title that is acceptable for the buyer’s purpose; marketable title represents where the buyer can communicate to someone else, therefore “good and marketable” title is preferred. Public records are “searched” prior to closing, to determine previous ownership of property and prior deals related to such property. This may disclose existing mortgages, liens, outstanding utility charges and taxes etc., anything that is registered against the property. Upon closing, a buyer will expect to find the property free of claims therefore they must be cleared before closing. For example, outstanding monetary expenses like taxes and utilities will be paid for or adjusted , or the seller’s mortgage will be discharged or adjusted at closing.
There are sometimes defects or problems regarding title with things not being discovered prior to closing or not adjusted prior to closing. These problems make the property less marketable when buyer wants to sell and depending on the problem, can cost considerable money to rectify. For example, the dock and boathouse built on a river adjoining a vacation property failed to show on the survey that it was built without permission therefore the buyer is out of pocket when later forced to remove the boathouse and dock., Or that the property was conveyed to a previous owner fraudulently and have the risk where the real owner will come forward at a later date and demand their rights to that property.
Who is Protected With Title Insurance?
Title insurance protects purchasers or lenders against potential loss or damage suffered in a claim that is covered under the policy terms. These policies can be issued in favour of the lender, or the purchaser (on new or resale homes, condos or vacation properties) or both the lender and the purchaser.
The potential risks usually covered under the title insurance policy may include irregularities with survey, claims due to fraud, forgery or duress, forced removal of existing structures, lack of pedestrian or vehicle access to the property, unregistered easements and rights of way, zoning and setback non-compliance , work orders, or deficiencies, etc. Generally for a risk to be covered, it has to be already existing as of the policy date. With any insurance policy, some risks may not be covered, like native land claims and environmental hazards. These should be discussed with your lawyer to determine what is covered or not.
There the purchaser insured, is indemnified for actual loss of damage sustained up to the policy amount, which is based on purchase price. Some policies have inflation coverage where if the fair market value of a property increases then the policy amount also increases (to a set maximum).
How Long is the Insurance Coverage?
Where title insurance is covering the purchaser, the insurance remains in effect as long as the purchaser insured has the title to the property. Some insurance policies also protect those who receive title as a result of the death of the purchaser or family members ( spouse or child) where the property may have been transferred.
When the title insurance is covering the lender, that policy will remain in effect as long as the mortgage remains on title. The insured lender under title insurance policy is insured in the event that a lender realizes on its security and suffers damage or actual loss to a risk insured under that policy. Title insurance will cover lenders usually up to the principal amount of the mortgage.
In Canada, the purchaser of the property pays for the title insurance and is paid once (at the time of purchase). There may be situations where the sellers pays for title insurance and some policies automatically cover both the lender and the purchaser and others will cover both for extra costs.
Protection and Peace of Mind
Having title insurance will help ensure that the property closing is not delayed due to the defects in a title, and, should any issue arise relating to title risk covered under the policy, the insurance covers any legal expenses or fees created with defending the insured’s title and will pay in the event of loss.