The Ultimate Guide to Title Insurance in Canada

Are you buying a home in Canada? If so, title insurance is a must-have. Not only do most mortgage lenders require it, but it’s also the sensible thing to do when buying a home, even if it wasn’t mandatory with lenders. Let’s look at what title insurance is, what it does and doesn’t protect you against, the types of title insurance policies available and the kind of policies offered.

What is title insurance?

Title insurance is insurance that protects the title of your home. It’s an insurance policy specifically for real estate. Before we talk about title insurance any further, we need to explain what “title” means.

The definition of “title”

The term “title” is legal jargon which means that you’re the legal owner of the property. When you purchase a home, the existing homeowner signs the deed over to you. When that happens, you obtain title to the property. Your real estate lawyer then registers you on title with your provincial government’s land registry system. Now that you understand what “title” means, let’s talk about title insurance.

The definition of “title insurance”

Title insurance is insurance that specifically protects you as the homeowner from losses from your property’s ownership or title. There are two main types of title insurance. There’s title insurance to protect the homeowner and title insurance to protect your mortgage lender from losses (more on that in a section below).

Unlike home insurance and most other insurance policies, you only need to make a one-time payment to be protected by title insurance. This is different from home insurance, where you need to make regular payments (usually monthly or annually) for your coverage to continue to be in effect.

What does title insurance protect you against?

Title insurance protects the homeowner from any number of situations related to the title and ownership of your property.

Defects

Sometimes when you buy a property you might not be aware that there are issues or defects related to the property’s title. This could stop you from having clear ownership of the home you purchased. Title insurance can help protect you in this instance.

Liens

Another instance where title insurance could protect you is if there are any liens against the title of the property. Of course, the liens must be from a previous homeowner. You can’t just choose not to pay a contractor and use the title insurance to get out of it.

For example, it’s not unheard of for the previous homeowner to have mortgages, utilities or property taxes that aren’t fully paid. Unless that’s fully taken care of, these parties could go after you for the money owed when you become the owner of the property. Thankfully title insurance can protect you in those instances.

Encroachment

Fences are a common topic of disagreement between neighbours. Imagine your neighbour does a survey and finds out that your fence is built on their property. Maybe your garage is even built on their property. This could get pretty messy and costly from a legal perspective. Again, title insurance can help you in situations like this involving encroachment.

Fraud

With the prevalence of computers these days, title fraud is a growing issue. Imagine someone fraudulently obtains a mortgage on your property and skips town with the money. Sadly, there are fraudsters out there who will steal your personal information and use forged documents to transfer the title of your home to themselves or someone else. This is a homeowner’s worst nightmare.

Title fraud hurts both homeowners and lenders alike. It hurts everyone. You could be held liable for the funds that were fraudulently obtained. Title insurance can come to the rescue and protect you in this instance.

Errors

It’s not unheard of for there to be an error in public records or surveys. Sometimes there may be an issue with the title of your property that even stops you from selling it. Title insurance can once again come to the rescue.

What’s not covered?

While title insurance is great, it doesn’t protect you in all instances. In order to be protected, you need to own the property. It’s as simple as that.

You should read the fine print when buying any title insurance policy, as there are limitations in terms of how much of a payout you might receive. Title insurance can even pay your legal bills related to restoring the title on your property. However, as the title of this section goes, it doesn’t protect you in all cases.

As part of the standard legal process, your real estate lawyer should review the title of a property that you’re buying to ensure the title is free and clear. This is just a fancy way of saying that it doesn’t have any issues. The vast majority of the time the title will be fine.

Known issues that you ignored

However, there are instances when a problem is revealed. If your real estate lawyer comes across an issue with the title and you choose to ignore it, you can’t use the title insurance to make a claim later on to recoup any losses. This is because it’s a known defect and you should have taken steps earlier to resolve it.

Environmental hazards

Another instance where title insurance might not protect you is for environmental hazards. Imagine buying a home and finding out there is an oil tank buried in the backyard that has leaked and contaminated the soil. You’re more than likely out of luck when it comes to your title insurance policy. The same goes for native land claims.

If you skip a land survey

There’s a misconception out there that when buying a property, you don’t need a recent survey. Title insurance protects you. That’s simply not true. When buying a home, you have the option of paying for and obtaining a new land survey. If you choose not to get one and problems are discovered later on (i.e., your property lot isn’t as sizable as you thought it was), you’re likely out of luck, since you decided to skip your survey.

Defects missing from public records

Less common are issues not listed in records available to the public. This could be encroachments or liens not found in public records. Title insurance most likely doesn’t protect you here either.

Zoning and bylaw violations

When doing any major renovations or improvements on your property, it’s important to make sure that they comply with existing zoning bylaws. If they don’t and the city goes after you, title insurance likely won’t help you again in this instance.

Damaging events

Sometimes homeowners confuse title insurance with home insurance. Both are different insurance policies. Title insurance will not protect you if there is damage to your property from fires, flooding or theft. It’s your home insurance policy that can protect you from these things. You should review your home insurance policy to make sure you understand the extent to which you’re covered since every home insurance policy is slightly different.

What types of policies are there?

We touched on this early, but title insurance isn’t a one size fits all product. There are different types of policies available. When buying a title insurance policy, it’s important that you choose the right one.

Owner’s Policy

As a homeowner, you have the option of buying an owner’s title insurance policy. This is a title insurance policy that can protect you as the homeowner from any of the title losses listed in the section above, for the period of time that you own the property, up to the maximum outlined in your title insurance policy.

Lender’s Policy

The second type of title insurance is lender title insurance. As its name suggests, this can protect your mortgage lender if it’s discovered that your home’s mortgage is unenforceable or invalid. When taking out a mortgage with any lender in Canada, the homeowner is required to buy this as a condition of the mortgage. You’re almost always required to buy it in at least the amount of your mortgage.

Residential & Commercial Policies

If you’re buying a residential property, there are title insurance policies for that. If you’re buying a commercial property, there are separate title insurance policies for that as well.

What kinds of coverage does title insurance offer?

Like most financial products, title insurance comes in all different shapes and sizes. Residential title insurance can provide flexible coverage in any number of instances. Title insurance literally can pay for itself. It can save your lawyer time, which can save you money in the end.

Comprehensive Coverage

Similar to home insurance, there is a comprehensive policy. The comprehensive policy protects any losses related to the title of your property, as well as any mistakes your real estate lawyer may have made when reviewing your title for defects.

Gap Coverage

If you’re looking for added coverage, you can purchase gap coverage. Gap coverage protects you from when you buy your home and when the title is registered with your province’s land registration system.

Survey Coverage

Don’t feel like getting a survey done? You could buy survey coverage through title insurance. Most lenders will be fine with this in lieu of a recent survey.

Legal Coverage

You can also buy legal coverage. This helps pay for any legal fees you might have to pay to protect your property’s title.

How much is title insurance and how long does it remain in effect?

The price of title insurance depends on several factors. It mainly depends on the insurance company you choose and your property’s value. The one-time premium is then calculated based on this.

The good news is that once you pay that one-time fee, you get full protection from title insurance for as long as you’re the owner of the property (in most cases). Even if you pass away, your spouse or children may still receive full protection from the title insurance you originally purchased. What a great bargain!

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