Protecting your property is a high priority for homeowners. This is where title insurance comes into play—providing peace of mind against sudden, unforeseen, and expensive losses. While title insurance might seem like an additional expense, it is a wise investment that safeguards your most significant financial asset.
This blog post will explore what title insurance is and why it is crucial for homebuyers to obtain. It will also highlight potential complications and consequences of not having title insurance.
What is Title Insurance?
The term “title” refers to a person or company’s legal rights of ownership to a private property. This is distinguished from a “deed” which is the legal document used to transfer title between property owners.
Title insurance is a form of insurance coverage that protects a property owner against unforeseen losses in the event that issues arise in relation to title of the property. Title insurance can apply to both residential and commercial properties. Title insurance generally provides a property owner with coverage for as long as they retain an interest in the property.
Title insurance also differs from home insurance, which protects an insured from expected damage or loss to the physical property. It is important to note that title insurance is not an alternative to home insurance.
Owner’s Title Insurance vs. Lender’s Title Insurance
Title insurance can protect both the property owner and the mortgage lender. However, because property owners and lending professionals are focused on different risks involved in real estate transactions, separate title insurance policies may be obtained.
An owner’s title insurance policy protects their clear ownership and ability to sell the property against potential future legal claims. A lender’s title insurance policy secures their financial interest in the property up to the registered amount of the mortgage. Under such a policy, lenders are protected from risks such as mortgage unenforceability and title fraud losses.
What Does Title Insurance Cover?
While a title search conducted by your real estate lawyer can help identify potential issues, there can always be unforeseen problems lurking beneath the surface. Title insurance acts as a safety net, providing financial protection against potential issues, such as:
- Title defects;
- Fraud or misrepresentation;
- Title fraud or forgery of documents;
- Hidden liens or charges against the title; and
- Work orders from a municipality.
Depending on the issue that arises, the insurer may either pay the costs to correct the title or compensate the insured for the associated decrease in value due to the covered loss.
Title insurance, however, does not reveal potential issues before the property is purchased and does not typically cover physical and structural defects, environmental risks, and other risks that are known, agreed to, or created by the insured. It also does not protect a buyer from the regret of buying a particular property, nor does it cover negligence. Title insurance claims may be denied if the buyer had prior knowledge of the issue before purchasing the property.
What is a Title Search?
When looking to buy or sell a property, the buyer or seller wants to ensure that the property has clean title. In other words, a title search is used to ensure that there are no problematic legal instruments registered on title. A title search is a review of the available records of title to the property used to determine ownership and flag any potential issues. A real estate lawyer or title company typically conducts the title search.
Is Title Insurance Necessary?
Although title insurance is not mandatory when taking title to a property in Ontario, a lender may refuse to provide financing if a title insurance policy is not obtained on their behalf. Due to the potential liability involved, real estate lawyers may also refuse to act on property transactions that are not title insured.
A solicitor’s opinion on title is an alternative to title insurance; however, this offers less protection than title insurance and requires the lawyer to conduct multiple costly and time-consuming “off-title searches”. The lawyer also requires an up-to-date survey of the property, which can be costly to obtain and may exceed the cost of a standard title insurance policy. If a title issue arises, a purchaser may be limited in their recourse.
When is Title Insurance Purchased?
The homebuyer typically purchases title insurance shortly before the expected closing date. The cost of the insurance is a one-time premium. The cost of title insurance will depend on several factors, such as the location of the property and the purchase price.
After your real estate lawyer has conducted a thorough title search on the property in question, any potential issues will be identified and addressed prior to closing. Afterwards, a title insurance policy will be issued and will outline the coverage and exclusions.
Working With Your Real Estate Lawyer
There are several reasons as to why a property purchaser should invest in a title insurance policy when purchasing a property. By opting to pay a one-time premium, buyers will receive a high level of protection against several potential issues, including fraud, title defects, and tax arrears from a previous owner. It is important for property owners to carefully review the terms and conditions contained within their title insurance policy to understand what is or is not covered. Your real estate lawyer can also explain any nuances contained within your title insurance policy to help you understand your coverage and any limitations.
The Real Estate Lawyers at Bader Law Guide Clients Through the Buying and Selling Process
At Bader Law, our trusted team of real estate lawyers represent individual and corporate buyers and sellers in both residential and commercial property transactions. We advise our clients on their options, ensure their interests are protected, and help them protect their assets and investments. We work with buyers and sellers across Ontario from our offices in Mississauga and Oakville. Contact us online or by phone at (289) 652-9092 to speak with a member of our team regarding your upcoming property purchase or sale.