Buying a home can be an exciting, yet overwhelming, time. Many first-time homebuyers feel as though they need to learn a new language; property tax, replacement cost, market value and indemnity. It can be a confusing time! All that you really want to do is buy your dream home and protect it. That’s where title insurance can help. Is it a necessity or a good idea? Let’s break down title insurance to help you better decide if you want to add it to your new vocabulary.
What is Title Insurance?
When you purchase a property, the previous owner will sign the deed over to you. This deed is also known as the “title”. Once you own the title, you now have legal ownership of the property.
What does it protect against?
Title insurance is a form of protection against losses relating to your ownership, its registration or the transfer of the deed to your name. According to the FSRAO website, this policy can protect you from the below losses for a one-time fee, known as a premium:
- Unknown title defects that impact your ownership of the property
- Existing liens against the property’s title, such as unpaid debts secured against the property by a previous owner, including:
- Utility bills
- Property taxes
- Condominium charges
- Encroachment issues (e.g. a structure on your property that encroaches on your neighbour’s property)
- Errors in surveys and public records
- Other title issues that may affect your ability to sell, mortgage or lease your property in the future
- Title fraud
While these issues are not very common, title insurance can help you mitigate the damages your property may cause you.
What doesn’t it protect against?
Title insurance will not cover you for any of the following issues:
- Known title defects (that are revealed to you before your property purchase)
- Environmental hazards (e.g. soil contamination)
- Native land claims
- Problems that are only discovered by a new survey or inspection of your property (e.g. the property is smaller than originally thought)
- Matters that are not listed in public records (e.g. unrecorded liens and encroachments)
- Zoning bylaw violations from changes, renovations or additions to your property/land that you are responsible for creating
IMPORTANT: Title insurance is not a substitute for property insurance. It only covers issues relating to the ownership of the property, not the property itself.
Do I really need Title Insurance?
While it is not a requirement, title insurance can offer you and your investment protection in five key areas:
- Comprehensive coverage: This will cover you against any losses relating to your property ownership.
- Gap coverage: Covers your investment during the gap in time between the home closing date and when you register for ownership with the Ontario land registration system.
- Survey coverage: If you purchase survey coverage, you may not need to have a property survey again after your purchase.
- Legal coverage: If the ownership of your home requires defending in court, this will cover most of the legal expenses, depending on the policy you have.
For a full list of property types that title insurance covers, click here.
Title Insurance purchasing tips
When purchasing residential title insurance, you should make sure that:
- You insure your property for its full value
- Your policy’s effective date is the same as your property’s closing date (for policies obtained at the time of purchase)
- Carefully review your policy to ensure that it correctly describes all of the property you are purchasing
- Understanding what title losses your policy covers and excludes
Having title insurance can save you time and money when you’re closing on your home. This means fewer billable hours for your lawyer, leaving more money in your pocket!
How much does Title Insurance cost?
When purchasing this type of insurance, the cost can vary depending on the value of your property and the insurance company you choose. It is a one-time premium and is valid for the entire time you own the property. Another advantage worth mentioning is it can be passed on to your spouse, your heirs or your children. This can save a lot of time, money and headaches for your beneficiaries, as they’ll have legal proof of ownership.
Where can I purchase it?
You can purchase residential title insurance through your lawyer or insurance company. For a list of insurance companies that have license to sell title insurance in Ontario, visit the Financial Services Commission of Ontario’s (FSCO) website.
What is title fraud?
Title fraud (or real estate title fraud) is a form of fraud that may harm you as a homeowner or your lender. The fraudster then uses the title to secure a mortgage on your home and disappears with the money. If you have been a victim of title fraud, visit ontario.ca for information on how you can receive compensation.
Title insurance policies contain a lot of legal terminology. Make sure you ask your lawyer or isure broker questions about anything that you do not understand. In addition, your isure broker can help you choose the best home insurance policy so that you and your investment have adequate coverage.