If you’re new to homeownership, understanding the importance of title insurance might be a new concept to you. It’s an important part of homeownership that can save you from financial losses later on.
We’ll be covering everything you need to know about the importance of title insurance, from what it is to what it covers. Keep reading to find out!
What Is Title Insurance?
The term “title” is a legal term that refers to the ownership of a property. When the previous owner signs the deed over to you, that’s when you obtain title over a property. The title is registered with the land registry office.
Title insurance is a policy that protects this legal ownership. It’s available for both residential and commercial property owners.
In Canada, it isn’t a legal requirement in most provinces. However, the importance of title insurance will come into play with your mortgage lender as it will cover both of you against losses related to the property’s title.
Title insurance isn’t an annual policy. Unlike other insurance policies, you pay for title insurance only once. The policy covers you for the entire duration of your ownership of that property.
Title insurance coverage can be purchased at any time, not just when you purchase the property. Though this is the most common time to purchase it, or if you’re looking at mortgage refinance options.
The average cost in Canada for title insurance is between $125 to $325. For such a small cost, this policy can bring peace of mind for homeowners.
Types of Title Insurance
There are two main types of title insurance and this affects what they cover.
An owner’s title insurance policy protects the property owner from various common losses listed in the policy. While a lender’s policy only protects your mortgage lender from losses in the event that the mortgage is unenforceable due to title issues. The latter policy would only provide coverage for the duration of the mortgage.
Generally speaking, the potential losses that the policy protects against are the same.
What Does Title Insurance Cover?
The policy will vary from insurer to insurer, so it’s well worth reading through your individual insurance coverage documents to find out what your title insurance protects against.
The vast majority of title insurance policies cover the following:
A lien refers to when a lender or other party has a right to the property. So your mortgage lender will obviously have a lien against your property until your mortgage is paid.
The problems begin when a previous homeowner has liens from other parties. This could be from their mortgage lender, utility supplier, or even a government lien from failure to pay property taxes.
If there is an existing lien against the property, this will prevent you from having clear ownership of the property.
Encroachment and Easement Issues
Encroachment issues are one of the most common ownership problems. It could be that a structure on your property needs to be removed as it is not actually on your property.
It could be a neighbor who has moved the property boundary without the legal process involved. Or it could be that a neighbor is denying you the right of way to your property.
There are endless examples of possible encroachment issues. Title insurance protects you against the costs of a lawyer and legal fees associated with these issues.
Mistakes happen, even in property deeds. But mistakes in property deeds can cause a far bigger headache than day-to-day errors. If your name or the street name is misspelled on the property deed, this can cause lead to problems later on.
Unknown Title Defects
Vague and ominous-sounding, unknown title defects refer to not yet known title issues. An example of this could be someone else claiming an interest in the property due to previously being on the title. A good solicitor would usually pick up on any of these potential issues, but in instances of divorce or death, sometimes this happens.
Unknown title defects coverage would therefore protect you from any issue that prevents clear ownership of your property.
Title fraud is a type of identity theft. A fraudster uses stolen personal information and forged documents to transfer your property title to themselves, or another party. This occurs without the homeowner’s knowledge.
The fraudulent party then takes out a mortgage on your home and takes the money. You can protect yourself from title fraud in a variety of ways. However, should the worst happen, title insurance will protect you from the associated costs.
What Does Title Insurance Not Cover?
Many homeowners, especially those new to the housing market, maybe confused by what title insurance does not cover. Again, this will vary policy to policy but broadly speaking, title insurance will not cover many common property issues.
Known title defects are not covered. These are title defects that were declared prior to your purchase. So you can’t go back and cover these issues if you were aware of the issues at the time of purchase.
If you violate zoning bylaws by altering your property, your title insurance will not cover you for these costs. This is because you were, or should have been, aware of them and are therefore responsible for the issue.
Title insurance would also not protect you against native land claims. The local authority should be involved in the process because the affected homeowners would need to be compensated.
Your title insurance also won’t protect you from non-title-related issues. New homeowners often confuse title insurance with home insurance. Title insurance will not compensate you for common home claims like damages, theft, or fire.
Where Can I Buy Title Insurance?
You can buy title insurance from title insurance companies. A mortgage broker can advise you as to the type of insurance and coverage best suited for your home.