Thinking about buying a home? Before you embark on this exciting journey, its important to understand title insurance.
When embarking on the journey of purchasing a property in Canada, whether it's your dream home, a vacation getaway, or an investment opportunity, one critical aspect that often goes unnoticed is title insurance. Title insurance, while not mandatory in Canada, has become an increasingly popular choice for home buyers and investors looking to mitigate potential risks associated with property transactions. In this comprehensive guide, we delve into the world of title insurance in Canada, exploring its significance, benefits, and the broader landscape of real estate transactions in the country.
What is Title Insurance?
Title insurance is a specialized form of insurance designed to provide protection to property buyers and mortgage lenders against potential issues related to the property's title or ownership. When you purchase a property, you are essentially acquiring the legal rights and interests associated with it. However, hidden defects or disputes regarding ownership can arise, even after a thorough due diligence process. Title insurance acts as a safety net, covering the property owner or lender in case any of these unforeseen issues come to light.
As an insurance product, title insurance doesn’t fix problems. It provides insurance coverage for them.
In other words, the title insurer has no obligation to do anything until a problem actually arises. When a problem does arise, the insurer can pay damages or actually fix the problem.
Significance of Title Insurance
Title insurance serves as a safeguard against a range of potential risks that could impact the ownership and value of a property. Some of the common risks that title insurance covers include:
can cover future title fraud (i.e. if through fraudulent transactions and paperwork, someone loses title to a property they legally own – title insurance can assist in getting title back)
can provide “gap coverage” to buyers and borrowers, which protects their interests when a transaction is closing. There is often a gap of several days between the submission of the land transfer or the mortgage document to the Land Titles Office and the registration of these interests on title. Lawyers cannot release mortgage funds to a seller until registration is complete and the title shows no intervening registrations. A borrower can arrange a title insurance policy quickly and it takes effect on the date of issue. It assures the state of the title at date of registration of the land transfer (real estate trade) or loan document (mortgage deal)
may cover deficiencies that would not show on a real property report such as unregistered utility easements or builders liens or matters that would be shown by non-Land Titles searches such as deficient corporate status
may cover hidden deficiencies such as underground storage tanks or underground septic tanks. Sometimes coverage will include known defects, for example a fence in the wrong location or a deck that is too big for the property
Title insurance operates on a no-fault basis. No-fault insurance is when the insurance company indemnifies the policy holder for losses, regardless of fault in the incident.
Examples
Non-title defect
After moving into an existing home, John receives a notice from the municipality requiring him to obtain a building permit for a family room addition the previous owner built without a permit. John hires a contractor to inspect the addition. The inspection report recommends the demolition of the addition. Title insurance may cover the cost of demolition and the loss of property value or the cost of reconstruction.
Unknown municipal compliance issue
Monika purchases her first home, which includes a large rear deck off the kitchen that the previous owners built. After moving into the property, the utility company advises Monika that it needs to repair an underground service and will be digging along its utility right-of-way. Much to her surprise Monika discovers that a portion of the deck is over the company’s utility right-of-way, creating an encroachment. She must remove this portion of the deck to allow the excavation that repair the underground service. An owner’s title insurance policy may cover Monika’s cost for the removal of the encroaching structure.
Known municipal compliance issue
Joe decides to buy a house with a large two-car garage off a back lane. Joe, the current owner, discloses that the location of the garage foundation is too close to the rear lane. This creates an encroachment on municipal property. It may be possible for the seller and the buyer to agree to title insurance to facilitate the sale. The seller would purchase the insurance for the buyer in lieu of, or in addition to, providing an RPR. The buyer may accept title insurance with the understanding that the insurer can refuse to pay the claim should the situation arise. The seller must disclose to the insurer the encroachment prior to purchasing the policy.
Types of Title Insurance
Owner's Title Insurance: This type of title insurance is typically purchased by the property buyer (homeowner) and provides coverage for a variety of potential title issues that may arise after the property is purchased. The purchaser of the insurance must disclose any known issues or defects regarding the property’s title or non-title items to the insurer prior to purchasing a policy. If you’re considering buying title insurance, make sure you know the covered risks, as well as the limitations and exclusions to coverage.
Lender's Title Insurance: This type of title insurance is typically required by lenders when a mortgage is obtained to purchase a property. This type of title insurance gives protection to the lender with respect to the priority, validity and enforce-ability of the mortgage. If your lender requires a title insurance policy as part of the transaction, that policy is for the benefit of the lender and will not cover you as the buyer.
Is title insurance the same as a Real Property Report (RPR)?
No. An RPR is a legal document an Alberta Land Surveyor prepares that clearly illustrates the boundaries of a property and the location of improvements, such as buildings, garages, sheds, and fences, relative to property boundaries. An RPR with a stamp of municipal compliance shows a home buyer what he or she is buying and that it complies with municipal regulations. Title insurance is an insurance policy that protects against certain unknowns. Though they are not the same, both can provide some protection for a buyer.
Title insurance typically provides coverage for as long as you own the property, not just at the time of purchase. This ongoing protection can be valuable over the years.
Its ability to provide coverage against a range of unforeseen title-related risks, coupled with the peace of mind it offers, has contributed to its growing popularity. As the Canadian real estate market continues to evolve, title insurance remains an essential consideration for anyone involved in property transactions, ensuring that their investments are safeguarded against potential future challenges.
kvij@mortgagealliance.com I (780) 233-8500
Comments