The Ultimate Guide to Title Insurance in Ontario
By Arthur Dubois | 05 Jul 2023 |
When you become a property owner in Ontario, there’s more than meets the eye – your new possession isn’t just about the keys to your home, it’s about a critical legal concept known as ‘title’. The moment you purchase property, your legal ownership is dutifully registered in Ontario’s land registration system. But what happens if that ownership is threatened, or errors surface, or legal disputes arise? This is where title insurance comes into play.
Understanding Title Insurance in Ontario
What is Title Insurance?
At its core, title insurance protects property owners and their lenders against any financial loss due to title defects or errors. These issues can include but are not limited to fraud, forgery, or liens, such as the previous owner’s unpaid debts secured by the property.
Title insurance also provides gap protection. Gap protection protects you from loss if an issue arises between when you finalize the purchase and before you are registered as the owner. For example, title insurance can protect you from that loss if you finalize the deal but then discover a lien against the property for the previous owner’s unpaid income tax before you are registered.
Title insurance can also cover legal expenses that may arise from challenges to the title, including costs associated with defending against a claim or lawsuit related to the property.
Title insurance policies are typically valid for the entire time that an owner or lender remains involved with a property rather than just a fixed term. The ongoing coverage title insurance offers sets it apart from other forms of insurance that typically expire or require renewal after a certain period.
In some circumstances, you can transfer your title insurance policy. You can transfer title insurance to your spouse if you divorce, to children if you transfer the property’s title to them, and to the heirs you name in your will if they inherit the property.
You can purchase title insurance for residential and commercial properties. Residential properties include single homes, semi-detached and townhouses, condos, vacant land, rental properties, cottages and rural properties. Title insurance is also available for commercial properties such as office buildings, shopping centres, warehouses, industrial lots and commercial property that is leased or vacant.
Why is Title Insurance Important?
When you own a piece of property, you want to ensure that you genuinely have full ownership and that there are no outstanding claims. Title insurance protects you against losing your title or financial loss due to an undiscovered issue. This type of insurance provides peace of mind knowing that no matter what may arise, your ownership of your property is protected.
Property owners may be vulnerable to various issues that could result in financial loss or legal disputes without title insurance. For example, if a previous property owner had an outstanding mortgage or lien not discovered during the title search, the new owner could be held responsible for paying off the debt. An outstanding lien could result in significant financial hardship and legal challenges.
How Does Title Insurance Work in Ontario?
When you purchase a property, your lawyer normally conducts a title search to determine the state of title on the property. This process involves an investigation to ensure that the seller is the legal owner of the property and that there are no outstanding mortgages, judgments, or liens on the property.
While a title search is an essential step in the home-buying process, it is not foolproof. There may be issues your lawyer doesn’t discover during the search, such as fraudulent activity or errors in public records. This is where title insurance comes in.
After the title search is conducted, you can purchase title insurance to provide additional protection against undiscovered issues. The cost of title insurance is typically a one-time fee you pay at closing. The policy remains in effect as long as the owner or lender remains involved with the property.
In Ontario, title insurance is not mandatory but highly recommended. While the cost of title insurance may seem like an additional expense, it is a small price to pay for the peace of mind that comes with knowing that you have financial protection for your property against potential title issues.
Overall, title insurance is an essential consideration for anyone purchasing a property in Ontario. By protecting possible title issues, title insurance can help property owners and their lenders avoid financial loss and legal disputes.
Types of Title Insurance Coverage
Owner’s Policy
An owner’s policy is Ontario’s most commonly purchased type of title insurance. It protects the owner of the property against any financial loss due to title defects or issues that arise. For example, if you discover after the purchase that there is a lien on the property or if there was a mistake in the legal description of the property, an owner’s policy can provide coverage for any resulting financial loss. Insurers typically base the policy’s amount on the property’s purchase price, and you pay the premium as a one-time fee at the time of purchase.
An owner’s policy only covers issues that existed before the purchase of the property. Any problems that arise after the acquisition are not covered.
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Lender’s Policy
Lenders typically require a lender’s policy to protect their interest in the property if the mortgage becomes unenforceable or invalid. A lender’s title insurance policy protects the lender against financial loss due to any title defects or issues that arise.
A lender’s policy only covers the lender’s interest in the property and does not provide any protection to the owner. If the owner wants protection, they must purchase an owner’s policy separately.
Extended Coverage
Extended coverage is an optional add-on to an owner’s policy that provides extra protection against issues not covered by a standard policy. Two common items covered by extended coverage are identity theft and known title defects.
Extended coverage may also cover defects you discover only through a physical inspection of the property, such as encroachments or boundary line disputes. It may also provide coverage for zoning violations, building permit violations, and other issues that may arise.
Extended coverage is not always necessary. Your lawyer can advise you whether it is worthwhile. You should base your decision to purchase extended coverage on the specific risks associated with the property. The premium is typically based on the purchase price and is paid as a one-time fee at the time of purchase.
Title Insurance Exclusions
Title insurance protects your ownership primarily against issues not discovered before you bought the property. Undisclosed liens, encroachments, title defects and errors are some common issues you could experience. It doesn’t cover everything that can go wrong with property ownership.
Exclusions to title insurance include any title defects you knew about before you bought the property, Indigenous land claims, environmental hazards, any items not listed in public records, any issues discovered if you conduct a new land survey, and zoning violations that result from changes you make to your property.
Title insurance doesn’t cover theft, burglary or physical damage to your property. A home insurance policy, however, can insure you for physical damage such as flooding, wind damage, fire or theft. If you have a mortgage on your property, the lender typically requires that you have both homeowner’s insurance and lender’s title insurance.
The Cost of Title Insurance in Ontario
The cost of title insurance can vary, depending on several factors. One major factor that affects the premium is the property value—generally, the higher the property value, the higher the premium.
Another factor affecting the cost of title insurance is the type of policy you choose and the company you deal with. There are two types of policies: owner’s policies and lender’s policies. Buyers may purchase both policies for maximum protection, but this will increase the overall cost.
Extended coverage is another factor that can affect the cost of title insurance. Extended coverage is optional and includes items such as survey coverage and identity theft. While these options can provide additional protection, they also come with an additional cost.
The cost of title insurance, which is a one-time fee, ranges from $200-$500, depending on the value of your property and the type of title insurance you want. The approximate cost per $1000 of title insurance is $0.725.
Comparing Title Insurance Providers
When shopping for title insurance, it’s important to compare providers to ensure you get the best possible rates. Currently, there are five companies that provide title insurance in Canada. They are FCT Insurance, Stewart Title Guaranty Company, Chicago Title Insurance Company, Travelers Guarantee Company of Canada and Title Plus. Your lawyer usually arranges title insurance for you upon closing if you decide you want a policy. Additionally, most insurance brokers should be able get a title insurance policy for you.
Saving Money on Title Insurance
While title insurance is a necessary cost to consider when purchasing a property, there are several ways to save money on premiums. One option is to ask your realtor or mortgage broker if any promotions or discounts are available. Some realtors may offer a rebate on the cost of title insurance as an incentive to work with them.
Another way to save money on title insurance is to shop around and get quotes from multiple providers. Buyers should be sure to compare not only the premiums but also the coverage and reputation of the providers.
Finally, buyers can save money on title insurance by being proactive in the home-buying process. For example, a survey before purchasing the property can help identify potential issues that may increase the cost of title insurance. Additionally, buyers can work with their lawyer or realtor to ensure that all necessary documentation is in order, which can help to streamline the title insurance process and potentially reduce costs.
The Process of Obtaining Title Insurance
There are many steps to ensure the transaction goes smoothly. One of the most important steps is obtaining title insurance. Many lenders require you to purchase title insurance as a condition of the mortgage. Typically, you have to pay the cost of the title insurance. Here, we will explore obtaining title insurance in Ontario.
Conducting a Title Search
Before you can obtain title insurance, you must get a title search to ensure that the seller is the legal owner of the property and that there are no liens or judgments against it. The title search can uncover various issues, such as outstanding mortgages, easements,or other claims to the property. It is essential to address any problems the title search uncovers before closing on the property.
You can do a title search yourself electronically or by visiting the land registry office if the property is not registered in the electronic database. Many, but not all, properties can be found online.
To do a title search yourself for the property visit Onland.ca. You can conduct your search by providing either the PIN (property’s identification number), the exact municipal address of the property, the property’s legal description or the property owner’s name.
Doing a property search online will provide you with the PIN, the legal description of the property, any items registered on the title and the property owner’s name or names. The title search will also show items like mortgages, spousal interest, tax liens or other liens against the property.
You may not see writs if you conduct your title search online, and you cannot get a survey of the property. Having a lawyer perform a title search may provide you with more detailed information than if you conduct one yourself. Your lawyer will also accurately interpret all the information in a title search. Missing information or inaccurately interpreting the information found on the title search can hinder your real estate transaction. Therefore, having a lawyer do a title search can be a good idea.
Title insurance is not a replacement for a title search. While title insurance can provide valuable protection, conducting a thorough title search is still essential to uncover any potential issues.
Reviewing the Title Commitment
Once the title search is completed, you will receive a title commitment from the title insurance company outlining any issues found. This document provides an overview of the coverage the title insurance policy provides. Reviewing the title commitment carefully to understand the coverage provided and any applicable limitations or exclusions is essential.
You must address any issues uncovered during the title search before the title insurance policy can be issued. This may involve resolving outstanding liens or judgments or obtaining additional documentation to clarify ownership or other issues.
Closing the Deal and Issuing the Policy
Once you review the title commitment and resolve any issues, the closing process takes place. The closing involves the transfer of ownership and the disbursement of funds. The title insurance policy is issued at the end of the process, providing coverage that protects you and your lender against any financial loss resulting from title issues discovered after closing.
It is important to note that title insurance policies are typically issued for a one-time premium. Once you purchase the policy, it will provide coverage as long as you own the property. You don’t need to renew the policy each year.
Armed with this information, you should now have a solid understanding of title insurance in Ontario. Whether you are a first-time homebuyer or a seasoned real estate investor, title insurance provides valuable protection and peace of mind. Be sure to research your options and make an informed decision regarding securing your property with title insurance.
FAQs About Title Insurance in Ontario
Five companies that provide title insurance in Ontario are FCT Insurance, Stewart Title Guaranty Company, Chicago Title Insurance Company, Travelers Guarantee Company of Canada and Title Plus. Your lender may deal with a specific company for lender’s insurance, but you can compare policies and prices to find the best owner’s policy for your needs.
The price of title insurance depends on the value of your policy, the type of title insurance you choose and the company you deal with. Generally, you can expect to pay $200-$500 for title insurance. It’s a one-time fee because an owner’s title insurance policy remains in place as long as you own the property.
Title insurance is not mandatory in Ontario, although it can provide significant value because it protects the ownership of your property. If you need a mortgage to buy your property, many lenders require you to purchase lender’s title insurance as a condition of the mortgage.
Title insurance covers several things. Lender’s title insurance protects the lender’s interest if the mortgage is invalid or unenforceable. Owner’s title insurance covers you against liability or loss that was present before you bought the property. Items it covers include liens on the property, encroachment issues, title fraud, forgery, title defects that could impact your ownership and errors. Extended coverage can insure you for identity theft, certain known title defects, and issues that may come up due to a physical inspection of the property, such as an encroachment.
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