Is Title Insurance Right For You?
Title insurance is growing in popularity in Canada. But what is it exactly? Should you get it? Do you need it? Whether title insurance is right for you is something you should discuss with your lawyer, as it depends on the circumstances of your transaction. This article will provide you with some background information about title insurance to help you make an informed decision.
Title to Property
Title insurance is unlike any other kind of insurance. It is not house insurance which only protects the contents of your home or its structure and for which you have to pay a monthly premium. Rather it protects your ownership to the property and protects you against many factors. Unlike house insurance, you only pay a one-time premium with no deductible. Title insurance usually covers all legal expenses related to restoring title, meaning that you do not have to take time off work and deal with the added stress needed to defend yourself.
Title is the legal term for ownership of property. Buyers want a "good and marketable" title to a property. A good title means that the property is appropriate for the buyer's purposes and a marketable title means the buyer can convey this title to someone else. Public records are usually "searched" before the closing to determine the previous ownership of the property, as well as prior dealings related to it. The search will reveal very valuable information such as existing mortgages, liens for outstanding taxes, and utility charges, that may be registered against the property. The buyer usually expects to buy a property that is free of such claims. This means that such problems must be cleared up before the closing. For example, the seller's mortgage will be discharged and outstanding monetary expenses will be paid for at closing.
However, problems regarding title may not be discovered before closing, or are not remedied before closing. Such defects can make the property less marketable when the buyer tries to sell it and, depending on the nature of the problem, they can also cost money. 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 legal 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.
What does the Title Insurance protect?
There are a series of matters which are covered by a title insurance policy that deal with events that occur after the date of the purchase. These include fraud and forgery after the policy date, matters that are obviously not protected by the lawyer’s usual title opinion given effective as of closing. There may also be some cost savings that can be achieved 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 is made to protect purchasers and/or lenders against loss or damage sustained if a claim that is covered under the terms of the policy is made.
In addition, there are many types of risks that are usually covered under a title insurance policy such as survey irregularities, forced removal of existing structures, unregistered easements and rights of-way, lack of pedestrian or vehicular access to the property and many more. For a risk to be covered, it has to have existed as of the date of the policy. However, as with any type of insurance policy, there are certain types of risks that might not be covered, such as, native land claims and environmental hazards. Before obtaining a Title Insurance, discuss with your lawyer or real estate agent what risks are covered and what are excluded.
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 like certain family members 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 under the condition that the lender suffers actual loss or damage with respect to a risk covered under the policy. This means that lenders are usually covered up to the principal amount of the mortgage.
If you feel that Title Insurance is right for you and would like more information, contact your local real estate agent. They will be more than happy to answer any of your questions and guide you through making a decision.