Sep 29, 2022
Find out if title insurance is mandatory for your property
Your ownership of a property is legally referred to as a title, but many Canadians are unaware of the importance of title insurance. When you buy a property, you may be thinking about finding movers, the closing costs, your home insurance quote, and renovations.
But what happens if there is something wrong with the property’s title?
Title insurance can ensure you are protected against specific actions and issues related to real estate transactions. Here’s why you should consider having this additional policy in Ontario.
What is title insurance?
Title is an authorized term referring to the legal ownership of property. When you sign the transfer document from the owner, you obtain the title. This is then registered into the government’s land registration system. It’s your legal proof of ownership.
Title insurance protects commercial and residential property owners. It is designed to protect the owners and lenders against losses related to property ownership, or title. This type of coverage will cover you if there is a title dispute after the sale.
A title insurance example
Remember that it does not cover what goes wrong with your house, such as the physical structure or damage from water – you would need flood insurance. It provides you with protection if the previous owner has not squared up outstanding debts on the property, if the previous homeowner had a second mortgage on the house with an outstanding balance, or if they are behind on their property taxes.
Let’s say you are buying a home and there is a gap between your coverage while you wait for the title to be transferred. You find out there was $22,000 left on the previous owner’s mortgage. If you have it active, your insurer will cover the costs.
Another example is if the previous owner did not pay their contractor and there are construction liens on the property, you would be covered for it. This also goes for encroachment issues (if a structure needs to be removed because it's on your neighbour's property). Without the additional coverage, you would have to pay for damages, fees, and fines.
What is the difference between home and title insurance?
The main difference between these types of policies is that insurance will protect you in the event of select accidental damages.
Title insurance covers the “title” related to property ownership. It won’t protect you from a fire, but it will protect you from real estate fraud. It also has a one-time payment that lasts as long as you own the property, versus home insurance that you renew yearly.
What does title insurance cover?
Title insurance seems to be a grey area of coverage for homeowners; there are a handful of benefits to what it will cover. And that includes a lot of what is not included in your basic homeowner's policy.
- Forgery, fraud, typos and minor errors in the legal description of the property.
- Unpaid utilities, mortgages, taxes, or condo maintenance fees.
- Removing existing structures if they violate zoning laws.
- Another person claiming an interest in the property.
- Legal claim by someone else on the property such as property liens or construction liens from unpaid contractor bills.
- The gap between finalizing the property purchase and when it is officially registered to the government.
Any title related issues that can affect your ability to mortgage, sell, or lease, are covered with this additional policy. The one-time fee is generally much more affordable than the costs associated with fixing those issues.
What is not covered with title insurance
As we mentioned above, title insurance will not protect you from anything wrong with your house or issues related to poor maintenance. Here are some other key areas of non-title that are excluded.
- Issues related to a new survey or property inspection.
- Zoning bylaw violations from home renovations or additions that you were responsible for.
- Burglary or home theft.
- Environmental hazards, such as soil contamination.
- Known title defects that were revealed before you bought the property.
- Wear and tear of your home and property.
- Damages from fire, water, or a sewer backup insurance.
What are the different types of title insurance?
While searching for a policy to protect your title, you’ll find two different types of options to meet your needs.
- Owners : Owner title insurance will protect the property owner from title related losses mentioned in the policy for as long as they own the property. Policy limits will apply.
- Lenders : Title insurance for lenders if the mortgage is invalid or unenforceable. Limits are usually around the property mortgage.
Once you have decided which type of title protection you need, you can opt for residential or commercial. As we’ve discussed, it is not a replacement for commercial business insurance or Ontario tenant insurance.
- Residential : Protection for new and existing homeowners, lenders on a residential mortgage, condos, rental units, vacant land, rural properties, and cottages.
- Commercial : Coverage for people purchasing commercial properties, lenders with a commercial mortgage, shopping centres, industrial lots, office buildings, warehouses, and vacant and leased commercial properties.
What does residential title insurance cover?
You can benefit from this additional policy if you buy a condo or home. If you currently own a property, you can still add it. Here are some of the benefits of residential title insurance.
- Survey coverage : You may have the option to eliminate an up-to-date property survey if you have coverage for your title.
- Comprehensive protection : You’ll have extra coverage for a broader range of losses related to the title.
- Gap protection : Gap protection will support you between the time your property closing is finalized and the time it takes to register it.
- Legal coverage and simplified process : The company you get it from will pay for most legal expenses to defend the property title. It will also simplify the closing process, saving you time and money.
What is title fraud?
Title fraud, also known as real estate title fraud, involves people using false or stolen information and documents to transfer your title without your knowledge. This would cause the fraudulent person to get your mortgage and finances related to your property.
If you are concerned about being a victim of real estate fraud, check out the Ontario government resources for title fraud.
How much does title insurance cost in Ontario?
When you invest in title insurance, you will only pay an upfront fee through your lawyer. In Ontario, it will cost around $200-$500 and is often purchased when you buy a property or home. The one-time premium will cover the insured property as long as you own it.
Where to buy title insurance
Since real estate transactions need to have a clear title to ensure it’s free from liens, and you can claim ownership, you can work with a company that specializes in these offerings. Here are some of the top places to get it across Canada.
- Travelers Canada
- Stewart Title Guaranty Company
- Chicago Title Insurance Company
- FCT Insurance Company Ltd
Tips for purchasing title insurance
Whether you are comparing costs or are curious to learn more about title insurance, here are some tips to support you during the process.
- Home value : Ensure your home replacement cost and policy are up to date and cover the total value of your home.
- Closing date : Confirm that the policy is effective on the exact closing date for your property.
- What’s included : Be clear about your understanding of what is included and excluded in the documents. Please review all the documents and ask questions when you have them.
- Property details : When reviewing your documents, ensure they correctly describe all of the property you are purchasing.
Title insurance FAQs
Unlike home insurance in Ontario, title insurance is not mandatory in the province. Always discuss the pros and cons of this additional plan to understand what value it can provide to you.
Title insurance in Ontario began in the 1990s and has since been a crucial conversation for homeowners when going through the process of buying a home.
You may consider extended title insurance to cover additional risks such as identity theft and title defects. Speak with your lawyer or insurer to compare different options to protect your title.
Title insurance lasts for as long as you own the property or home. When you sell it, the title will move over to the new owner, and you’ll need a new one for your next investment.
A final word on title insurance in Ontario
Most property owners should consider the one-time payment of title insurance, whether they are new to ownership or investing in commercial development.