A Title Insurance Guide: What You Need to Know to Protect Your Home Purchase
What is it, what does it cover and why should you purchase it?
In real estate transactions, title insurance is incredibly important, yet seldom understood. In response, we have prepared this guide on title insurance in Ontario, and what you need to know.
What is Title Insurance?
Title insurance is a policy to protect the legal title to your home. What this means is that everyone who purchases a property should expect to have good and marketable title that is free of encumbrances and rights of other parties (other than those encumbrances which you have consented to). Title Insurance comes in when, after a purchase, it is discovered that you did not get what you bargained for.
What does Title Insurance Cover?
Title insurance provides monetary solutions to legal problems. It can cover known, unknown and future risks.
Generally, title insurance covers unknown risks. These are risks that are not agreed to in the Agreement of Purchase and Sale, but that if discovered at a later time, interfere with your title. For example:
- Encroachments—often times, whether due to an inaccurate survey or otherwise, you may find out that your neighbour is encroaching on your property. They may have built a structure such as a shed or gazebo on what is actually your property.
- Fraud—title fraud is a profitable endeavor for fraudsters. By stealing your identity these individuals may register a mortgage on your property, take the money and disappear.
- Arrears—if the former owner has failed to pay their bills, whether property taxes or even equipment rentals like the hot water tank, as the new home owner you will find yourself on the hook.
These are a few, of the many types of risks you could encounter when purchasing a home, that will be covered by your title insurance policy.
It is becoming increasingly common for title insurance policies to insure future risks as well. You can purchase a title insurance policy with protection for “post-policy date events”. What this means, is that if an issue arises at any point while you own the property (such as a neighbour encroaching on your property) your title insurance will compensate you for the loss. If this is something that is important to you, your lawyer can negotiate its inclusion in your policy if it is not a standard term
What Does Title Insurance Not Cover?
Title insurance does not automatically cover known risks. A “knowledge defense” is a principle that title insurance companies can use to deny coverage if they discover that you knew about the defect when you purchased the policy. If you know about a defect, you need to either have the title insurance policy agree to “insure over” the risk (for an agreed cost) or have the sellers resolve the risk before you take title.
It is important that you are clear on what is, and what is not included in your policy. Exclusions and exceptions to your insurance coverage will be outlined in Schedule B to your policy. Your real estate lawyer can discuss these with you.
Commercial Title Insurance Policies
If you are purchasing a commercial property, it is especially essential that you familiarize yourself with what is and is not included. A commercial policy may require more negotiation than a residential policy, as it is common for a variety of risks to be specifically excluded in these policies such as:
- building and use restrictions;
- right of occupancy restrictions;
- unrecorded construction liens;
- rights to subdivide;
- expropriation rights;
- mineral rights;
- environmental issues.
You should discuss with your lawyer what is most important to you in your purchase, and they will advise if you should go beyond just a title insurance policy in your due diligence.
Is Title Insurance Right for You?
Title insurance is not mandatory, but most banks will require it if they are providing you a mortgage. Even without a mortgage, title insurance is never a bad idea. Title Insurance policies generally cost between $250-$400. This is a one-time premium that is good as long as you (or even your heirs in some circumstances) own the property. It is a small price to pay for the peace of mind it will bring.
If you are looking for more information on title insurance, contact our real estate team today!