What Is Title Insurance and Why Do You Need It When You Purchase a Home?
As part of the transactional process when purchasing real estate in Ontario, you as a purchaser, will need to hire a real estate lawyer. One of the roles of a real estate lawyer retained to complete a purchase is to conduct a title search of the property which includes examining title documentation to ensure, among other things, that (1) the seller legally owns the property, (2) there are no restrictions or encumbrances on title such as easements or zoning issues, and (3) there are no outstanding debts, claims or liens registered against the property.
However, if one of the roles of a real estate lawyer is to complete a title search of a property you are looking to purchase, it begs the question, “what is title insurance and why do I need it?”. Despite a real estate lawyer abiding by their professional and ethical obligations and duties when completing a title search, there is still a risk that there are issues with title that the lawyer did not or could not discover. For example, on a title search, a lawyer will review the last deed on title to ensure that the sellers have legal ownership of the property. However, it is impossible for them to discern if that deed is fraudulent or not. If it comes to light after the closing date of your purchase that the deed was fraudulent, you could be at risk for payment of hundreds of thousands of dollars in legal and other professional fees to fix the title issue.
Due to these unobservable risks, and the rising levels of title fraud in Ontario, title insurance has become a staple for most real estate purchases in Ontario. Title insurance is an insurance policy that purchasers of real estate in Ontario frequently acquire which protects you from pre-closing date issues relating to the title of your new home. Title insurance is not a replacement for a title search, but it has become the back up plan.
Title insurance will cover any issues you have after the closing date that affects the validity or marketability of your title if such issue occurred or materialized prior to the closing date of the purchase of the home. Title insurance will cover issues such as (1) encroachments, (2) fraud, (3) and property-related arrears of owing by the seller. Your policy premium is payable on the closing date, is often times a one-time payment between $200-$500 which will cover you from the date of closing until the date that you no longer own the home, whether by sale, death or otherwise. Real estate lawyers will usually obtain a title insurance policy for you as part of their retainer, so this is not a policy you will usually need to seek out on your own.
Title insurance is a very good vehicle for covering a myriad of risks, but it does not cover all issues that may arise as part of the purchase of a home. Some of the items that title insurance does not cover include (1) issues that arose in a home inspection, (2) environmental issues, (3) Aboriginal title claims to your property, and (4) known title defects that were revealed prior to your purchase of the home.
As mentioned, title fraud rates in Ontario are at an all-time high. Title fraud occurs when impostors or fraudsters steal title to your home. With title, they are able to sell your home, or apply for a mortgage which will be registered against the home. Often times, title fraud is initiated through identity theft, and you may not be aware of the fraud until years after the crime materialized when it comes time to sell your home. Title insurance serves as an extra lawyer of protection against the high costs of remedying the damages caused by title fraud that you would otherwise be liable to pay for.
There are different types of title insurance, and different types of properties that you can obtain title insurance for. If you are obtaining a mortgage in order to complete your purchase, most lenders will require a real estate lawyer to acquire a title insurance policy for the lender. These policies will insure a lender if the mortgage is invalid or unenforceable. In most cases, the lender will require the purchaser to pay for the premium of the lender policy. Further, there are different policies depending on whether the property purchased is going to be used for residential purposes, or commercial purposes.
The real estate lawyers at Ross & McBride can assist you with your real estate transactions, and will be happy to obtain and review a title insurance policy with you as part of the transactional process.
This article was originally published by The Hamilton Spectator.
