Two of the most common questions asked by clients during a real estate purchase transaction are:
- What is title insurance?
- Am I required to get title insurance?
Title insurance has been available in Ontario for over 20 years. If you made a residential or commercial property purchase in that time frame and still own the property, there is a good chance that you already have a title insurance policy. If you’re planning to purchase a property in the near future, your real estate lawyer should take the time to explain title insurance to you in detail so that you are aware of what it is, what it covers and how to make a claim.
The answers to the above questions and a few others will prepare you for this conversation with your real estate lawyer, so that you can get the best policy available.
What is title insurance?
Title insurance protects the owner(s) and their mortgage lenders against unknown issues andprevious claims, such as encumbrances and liens, that affect your ownership or a lender’s interest. In most cases, you will obtain a homeowner’s policy and a lender’s policy for each lender registering a mortgage on title to the property.
What does title insurance cover?
It is important to know that there is a big difference between title insurance and property insurance. Title insurance does not protect you from fire, flood, damage, theft, or any other issues that are typically covered by a property insurance policy.
Your standard title insurance policy will cover:
- unknown issues that affect your ownership in the property (ex. property tax arrears, condominium charges, utility arrears, other unregistered debts affecting the property);
- work orders issued and structures built on neighbouring properties (excluding fences); and
- title fraud (when your identity is stolen, and a mortgage is registered on title to your property).
A title insurance policy will not cover:
- title defects that are known before closing;
- environmental issues;
- Native land claims;
- issues that would have been discovered by way of inspection or by a new survey; and
- zoning violations caused by you and the inability to make changes to the land.
These are just some of the inclusions and exclusions that would be found in a standard title insurance policy.
Am I required to get a title insurance policy?
In Ontario, homeowners are not required to obtain a title insurance policy but can instead opt for a lawyer’s opinion on title. By proceeding this way, your lawyer will conduct off-title searches in an attempt to confirm that there are no issues affecting your ownership or a lender’s interest, including the review of an up-to-date survey of the property.
A lawyer’s opinion will aim to catch any issues that a title insurance policy would cover. By proceeding with a lawyer’s opinion, these issues, if any, are addressed prior to closing, where a title insurance policy provides protection after closing.
Typically, a lawyer’s opinion on title will lead to greater costs (i.e. legal fees, survey fees, third party fees, etc.) and will require more time before closing so that the findings can be reviewed. In today’s real estate market, there is a growing trend of faster closings which does not make a lawyer’s opinion on title a practical option.
How much does title insurance cost?
Title insurance is obtained by paying a one-time fee when the policy is ordered. Title insurance companies do not charge monthly premiums. The amount of the fee is based on – but not limited to – the value of the property, the value of any applicable mortgage, and additional coverage provisions.
When does my title insurance policy expire?
Your title insurance policy will be effective for as long as you own the property, and in the case of lenders, for as long as the mortgage is registered on the property. If you transfer title to add a spouse or a child, you should contact your title insurance provider to let them know about the change.
Your policy may be terminated if there is a change in property type, such as a single family residential home being converted into a duplex or triplex.
Can I obtain my own title insurance policy?
In Ontario, title insurance can only be obtained by five companies:
- Chicago Title Insurance Company;
- Stewart Title Guarantee Company of Canada;
- FCT Insurance Company Ltd.; and
- Travelers Guarantee Company of Canada.
If you are an existing homeowner, you can contact any of these companies to inquire about an existing homeowner’s policy. In the course of a purchase or mortgage transaction, your real estate lawyer will likely secure the policy on your behalf.
Speak to your real estate lawyer and ensure that you have a full understanding of what is included in and excluded from your policy. Ultimately, it is up to you as a client to decide which option best fits your needs.