You’ve finally found your dream home, signed all the paperwork, and received your keys. Only to discover an issue with the ownership, an undisclosed lien, or even title fraud. This is where title insurance becomes important.
In many Ontario real estate transactions, title insurance is strongly recommended because it can protect homeowners from a wide range of unforeseen concerns.
What Is Title Insurance?
“Title” simply refers to legal ownership of a property. You generally obtain title when ownership of the property is legally transferred to you during the closing process
Title insurance protects homeowners and lenders against certain losses associated with title and property ownership. It protects you from unknown issues that exist already at the time of the purchase of your property, not from known or future concerns.
Title insurance is a one-time payment that typically remains effective for as long as you own the property.
What Does Title Insurance Cover?
Your coverage depends on the policy and provider you choose, but generally, title insurance protects against issues such as:
- Fraud and impersonation: Situations where someone fraudulently sells your property or places a mortgage on it without your consent.
- Undisclosed liens and encumbrances: Unpaid taxes, mortgages, or financial claims that are attached to the property
- Errors in surveys/ public records: Mistakes in public records or land registry documents
- Boundary/encroachment issues: Situations where structures on your property extend onto your neighbour’s property
- Unknown title defects: Missing signatures or improperly filed documents that may impact ownership rights
- Zoning or bylaw violations
What Is Title Fraud?:
Title fraud is a major area of concern for both borrowers and lenders.
In cases of title fraud, an individual may impersonate a property owner and fraudulently sell the property or place a mortgage on it without the owner’s consent. In some situations, the fraud may not be discovered until significant losses have already occurred.
In some cases, the true owner may be reimbursed for their losses, however, title insurance may provide a more efficient means of protection and assistance in resolving fraud related losses.
Types of Title Insurance:
The Financial Services for Regulatory Authority of Ontario (FSRA) describes two types of title insurance:
- Owner’s Policy: Protects you from various title-related losses listed in the insurance policy. An owner’s policy sets a maximum amount of coverage.
- Lender’s Policy: Protects the lender from losses in the event that the property’s mortgage is invalid or unenforceable. A lender’s policy usually provides coverage for the amount of the property’s mortgage.
Is Title Insurance Mandatory?
While title insurance is not mandatory in Ontario, many homeowners choose to obtain coverage. Discussing title insurance with your lawyer can better help you understand whether title insurance is necessary for your circumstances. A real estate lawyer can help you better understand the risks associated with your purchase and whether title insurance is right for you.
Is Title Insurance Worth It?
The ‘worth’ of title insurance ultimately comes down to a buyer’s potential risk associated with the purchase of their property. For lenders, insurance assures that their mortgage is protected, and for owners, insurance provides peace of mind knowing that they are protected in the event of unforeseen circumstances. The value of title insurance should be evaluated on a case-by-case basis with the help of a lawyer or broker who is equipped with the knowledge to support you.
Every real estate transaction is different, and the risks associated with each property can vary. Seeking legal advice before closing can help ensure that you understand your options and are protected throughout the transaction.