Over the last couple of months I have been suggesting that my buyers use title insurance on all the homes they are buying. But what is title insurance and how does it work. I am finding a lot of buyers, sellers and real estate agents do not understand it and cannot explain it to their clients. So here is my explanation.
Title Insurance is an indemnification against loss or damage suffered as a result of survey problems, title defects, fraud, forgery, liens and encumbrances. Title insurance is an alternative to a Real Property Report, i.e. survey, with municipal compliance.
Features of Title Insurance:
Title Insurance provides greater protection for owners and lenders than the traditional lawyer’s opinion and reliance on the searches and documents usually obtained by the lawyer.
Title Insurance also insures owners and lenders for most survey related concerns. Where a traditional Real Property Report only gives a visual representation of the property and any survey related problems, Title Insurance provides a solution to problems if they arise by agreeing to cover the owner and the lender for the cost of correcting these problems.
A Title Insurance policy offers:
- A no-fault method to resolve title problems;
- Indemnity for actual loss or damage up to the policy amount;
- Payment of legal fees and costs to defend title, without regard to the policy amount;
- Benefits of Title Insurance:
- Covers risks from known and unknown survey problems;
- Eliminates the need to obtain and review a Real Property Report, Municipal Compliance, By-Law Relaxations or Encroachment Agreements;
- Reduces the Seller’s costs
- Saves time – can be obtained same day with a phone call
- Avoids the risk of breaching the Surveyor’s copyright when using a Real Property Report prepared for a previous transaction;
- Removes doubts raised by relying on an old Real Property Report;
- Can save deals that might otherwise be delayed or not completed due to survey or title problems;
- Provides protection from risks that might otherwise have to be assumed by the Buyer
- Allows the homeowner to move into their new home without complication or delay;
- Allows the Seller of the home to get all of their sale proceeds immediately;
- Simplifies the Real Estate transaction.
Why does the mortgagee require a survey?
Most mortgage lenders require a current and valid Real Property Report (survey) and proof of zoning by-law compliance from the local municipality, i.e. city, town, municipal district, etc. The mortgagee (lender) does this to insure initially that the buildings are entirely within the property boundaries and there is no risk that the security for the mortgage will be damaged by the forced removal of the improvements. Most Lenders will now accept a Real Property Report and evidence of municipal compliance or a policy of Title Insurance.
Who is protected with Title Insurance?
Title Insurance protects the owner and the Lender against survey related risks, and loss or damage, if any, suffered due to a defect that would be revealed by an up-to-date survey.
What does Title Insurance Cost?
The cost of Title Insurance for residential single family properties valued under $500,000 is $229 if a new mortgage is being placed. This is a one-time premium that covers the owner and the lender for as long as the mortgage is registered against the property. There is no GST charged on the coverage. Title Insurance for rural properties may cost more.
Who provides Title Insurance?
There are a number of insurance providers such as Chicago Title Insurance and First Canadian Title Company Ltd. Your insurance is ordered by the lawyer’s office at time of closing.
Limitations of Title Insurance:
- Covers only existing improvements. The addition you build later is not covered.
- Does not cover fences, retaining walls, especially with those that encroach on City land. You may also need to purchase a fence rider and it may cost more.
- Title Insurance must be purchased each time the property is sold – so it cannot be passed from Seller to Buyer down the line.
- There are a few mortgage companies that will not accept Title Insurance in lieu of an Real Property Report.
- Should difficulties arise, collection pursuant to the policy may take some time.
- As with any policy of insurance, the notion of subrogation exists. This means that the Insurer could sue the Insuree (Seller) if losses occur of which the Seller had knowledge and did not disclose to the title insurance company.