This article will provide you with some background information about title insurance to help you make an informed decision.
The background information provided in this article will help you make an informed decision about whether or not to invest in title insurance.
In property law, title is the legal term to denote ownership of property. As a buyer, you want “good and marketable” title to a property. Good title means that the title is legally valid for the buyer’s purposes and there are no legal questions as to the ownership of the property. Marketable title means that the title is free of claim or defect and can be conveyed by the buyer to someone else.
Prior to closing, several public record searches are conducted to determine the previous ownership of the property and any prior dealings related to it. The search may reveal existing mortgages, liens, or utility charges against the property. These claims must be cleared up before closing, as the buyer expects property that is free of such claims. In order to clear these claims, the seller’s mortgage will be discharged and outstanding monetary expenses (such as utility charges or taxes) will be paid for at closing, if applicable.
On occasion, some problems or defects are not discovered or remedied before closing. These defects can make the property less marketable when it comes time for the buyer to sell the property, and these defects can cost money to remedy. If the property was conveyed to a previous owner fraudulently, there is risk that the rightful owner may come forward and demand their rights to the property in the future.
Title insurance protects against financial loss in the event a claim related to such events, problems, or defects covered under the terms of the policy.
Title insurance policies are issued in favour of a buyer (on new/resale homes, condos, and vacation properties), a lender, or both the buyer and the lender. Lenders may require title insurance as a condition of a loan. Title insurance protects buyers and/or lenders against financial loss or damage sustained if a claim is made and covered under the terms of the policy.
Types of risks that are typically covered under a title insurance policy include but are not limited to: survey irregularities; claims due to fraud, forgery, or duress; forced removal of existing structures; unregistered easements and rights-of-way; zoning and set back non-compliance or deficiencies; lack of pedestrian or vehicular access to the property.
Generally, a risk needs to have existed as of the date of the policy to be covered. As with any type of insurance policy, there are some risks which may be excluded, such as environmental hazards. Consult with your lawyer to discuss which risks are included or excluded from the policy.
The insured buyer is indemnified for actual loss of damage sustained up to the amount of the policy. The amount of the policy is determined by the purchase price. Some policies may include inflation coverage, which increases the policy amount (up to a set maximum) as the fair market value of the property increases.
Regarding title insurance covering the purchaser, title insurance remains in effect for the duration of the time that the purchaser has title to the land. Some policies also insure those who inherit title upon the purchaser’s death, or family members to whom the title was transferred for a nominal consideration.
Regarding title insurance covering the lender, the policy remains active as long as the mortgage remains on title. A lender is insured in the event the lender realizes on its security and suffers actual damage or loss with respect to a risk covered under the policy. Generally lenders are covered up to the principal amount of the mortgage.
The premium for title insurance is a one-time fee at the time of purchase. In Canada the purchaser generally pays for title insurance, though there may be instances in which the seller pays for it. Some policies automatically cover both the buyer and the lender, while others will cover both parties for a small additional fee.
Investing in title insurance can prevent a delay in closing due to defects in the title. If an issue related to title arises as related to a risk covered under the policy, the title insurance will cover the legal fees and expenses associated with defending the title. Title insurance will also pay in the event of loss. Speak with your real estate agent and lawyer to learn more about title insurance and make an informed decision.