The term Title is a legal word indicating that the possessor has a legitimate ownership of a specific real property. At the time that the previous owner signs a transfer document or deed over to you is the time that you then have legal title to that property. This title is then registered in a master land registration system operated by the government to ensure that the legal right to ownership of that particular real property is unquestionable.
Title insurance was once considered to be solely an American real estate consideration, but an increasing number of lenders are requiring it on their property loans, although title insurance is generally not a government mandated requirement in Canada.
The determination as to whether to purchase such insurance is a factor that must be discussed with your trusted financial and legal advisors. There may be other options available which due to your particular situation, the specific property, and your own personal and financial preferences and requirements, may be preferred over the purchase of title insurance. It is imperative to realize that the purchase of title insurance is not a replacement or substitute for proper legal advice.
What Title Insurance Covers
Title insurance protects in the case of claims against the property by the seller's lien holders or family members, as well as errors or frauds in documentation, and the general unmarketability of the property. In exchange for a premium or fee which is paid one time only, the policy of title insurance may provide some element of protection from the possibility of losses arising from:
- Unknown defects in the title, including issues which can prevent the buyer from obtaining free and clear ownership of the residential property.
- Pre-existing liens active against the title of the property: for example debts incurred by the previous owner for mortgages, utilities, property taxes or even strata charges secured on the value of the home.
- Issues pertaining to encroachment, where a structure or use on your property violates the borders with a neighbour and must be rectified.
- Errors which may surface in public records or surveys.
- Various other issues related to the title of the property which can impact the ability to lease, mortgage or even sell the property at any given time.
- Wilful fraud in the title.
The possibility that the title has been the subject of wilful fraud is becoming ever more frequent. Real estate title fraud is a form of embezzlement which impacts both home owners and mortgage lenders. Typically it involves a criminal who utilizes identity theft procedures to forge signatures and documents in order to transfer your residential property's legal title to themselves. The identity thief then secures a mortgage based on the equity in your home, takes the money, and disappears.
The title insurance policy will continue to cover you as long as you are the owner of that property, and will generally cover the losses up to the maximum amount stated in the documentation. In many cases it will also cover the majority of legal expenses which are incurred in the restoration of your property's full legal title.
Be Aware Of Title Insurance Exclusions
Title insurance varies widely as there may be a variety of potential exclusions to coverage such as:
- Title defects which were acknowledged prior to the purchase of the property.
- Ecological hazards such as contamination of the property's soil.
- Claims by First Nations bands.
- Issues not included in public records such as encroachments or liens which are not recorded.
- Violations of zoning by-laws triggered by renovations, additions, or other modifications that the new owner will create.
It is also imperative to fully comprehend that title insurance does not replace a home insurance policy or home warranty, and thus does not cover damages or loss due to fire, flooding, theft, or required maintenance and repair expenses.
