What Exactly is Title Insurance Anyway?

Clients coming to see me about real estate purchases and/or mortgages are sometimes befuddled when it comes to the topic of title insurance. Fire insurance, car insurance and life insurance are all part of our common day to day experience. Yet insuring ‘title’ is a bit of a foreign concept for most and, at first blush, can seem like an unnecessary expense. However, there are several reasons why title insurance is advantageous.

In the real estate context, title refers to one’s legal ownership of property. Once property is purchased and a deed is obtained, it is easy to assume that title is yours and yours alone. Much of the time that is the case, but on rare occasions claims adverse to your ownership are discovered. It is possible that a former owner, the local municipality, neighbours or utility companies have an interest in your land without you realizing it. Title insurance has been established to protect against such issues.

Where title insurance is obtained, the title insurance stands in place of the opinion on title that lawyer’s historically provided to purchasing clients. Although the opinion on title is not provided where title insurance has been obtained, at Cohen Highley, we still conduct a full search of the property parcel register and pull and examine registered documents which may appear to have bearing on the quality of the title being transferred by the vendor. We still see the information revealed by the search as providing important information about the title to your property which you are acquiring. Where title insurance is employed, there are a number of municipal searches which we are no longer required to undertake. Closings tend to often be rushed these days and not having to write to the municipal office for records relating to zoning, building inspection and so forth, does permit us to proceed with closing more efficiently than would be the case if we had to await deliver or requests and return of replies. It is also the case that the typical municipal reply has the infamous “E&OE” (errors and omissions excepted) qualifier. If you have no title insurance, and the municipality has made a reporting error in their written report, they may be sorry, but you will be saddled with clearing up the problem. With title insurance, the title insurer will look after any such issues.

There are several title insurance companies operating in Ontario and no two title insurers provide the exact same coverage. However, title insurance typically protects against losses arising from issues such as:

• Another party claiming an interest in your property
• Title defects caused by forged documents, false impersonation or other frauds
• Contravention of zoning by-laws
• Outstanding work orders
• Existing liens against the property
• Encroachments onto or from abutting properties
• Errors in surveys and public documents

Like all insurance, there are exclusions to coverage. It is therefore very important to read the policy and make yourself aware of the limitations. Exclusions can include defects in title that you knew about before closing, aboriginal claims, environmental contaminations and zoning violations that you are responsible for creating. For a risk to be covered, it generally has to have existed prior to the policy date and not be something that you created after you became an owner.

Title insurance is not a requirement under Ontario law. It sometimes seems mandatory because a mortgage lender, particularly a commercial institution, frequently makes it a loan requirement. In these cases, the lender will require that you obtain a ‘lender’s policy’ in addition to any coverage you choose to have as an owner. Such a policy protects the lender in the event that their mortgage security is deemed invalid or unenforceable.

The availability of lender’s coverage means that lenders will also generally request such insurance during a refinancing of your home. So, even if you have owned a property for years and are quite confident that no title defects exist, title insurance will likely need to be obtained.

The cost of title insurance varies based on the use and value of the property. However, most premiums for residential properties are less than three hundred dollars for both an owner’s and a lender’s policy. For an owner’s policy, this is a one time fee due on closing and protects you and your title for as long as you own the property. Some title insurers also extend coverage to heirs, ex-spouses and children should they take over ownership directly from you. A new lender’s policy will be required for each new mortgage. In certain cases, the net cost of obtaining title insurance will be less than the cost of not having title insurance because title insurance companies don’t require your lawyer to obtain a number of municipal and other searches, saving you and your lawyer the costs of such other searches. The protection afforded by title insurance also extends beyond the protection that your lawyer can provide by way of a title opinion.

If you are in the process of buying or mortgaging real estate, it would be wise to contact your lawyer to get more detailed advice specific to your property. An informed decision may save plenty of headaches, as well as time and money down the road.