What is Title Insurance and Why Should I Buy it?

What Exactly is Title Insurance?

Most people today, when purchasing a home, are unaware of what title insurance is, why they should buy it, and if they do buy it, who they should purchase it from.

This type of insurance is a product offered by your real estate lawyer on behalf of various title insurance companies that protect your ownership interest on a property you are purchasing from losses that may result from unknown title defects at the time of closing.

Why it’s Important

For example, imagine shortly after you bought your home, you found out that there are two outstanding building permits registered against your property that was issued to the person you bought your home from.

You now discover that the renovation work done by the previous owner had major structural flaws relating to the foundation and/or support beams and requires over $140,000.00 of work to correct and close the building permits.

The title insurance you would have purchased with your lawyer is a cost-effective form of protection which would cover any financial costs associated with remedying those issues.

It’s a one-time fee, purchased usually at closing through your lawyer’s office, and continues to cover your purchase for the duration of the time you own the property up until when you sell.

What is Covered under a Title Insurance Policy?

While it always depends on the particular policy itself, title insurance can provide coverage for losses arising from fraud or false impersonation; existing liens on title; municipal zoning by-law violations; and encroachments onto the property.

When an individual who has purchased this insurance suffers a financial loss from any of these issues, they are able to submit a claim to their insurance company to seek compensation for their loss.

Common Questions

Question 1: Is Title Insurance required on my transaction?

Answer: While it’s not necessarily required on a transaction, the use of title insurance in residential transactions has become extremely common for most purchasers and is now viewed as the market norm.

For a minimal cost of a few hundred dollars, the buyer is receiving coverage ranging from $25,000.00 and up, depending on the insurance company chosen.

Question 2: Do I need title insurance if I’m, getting a mortgage on the property?

Answer: If you are getting a mortgage, it is important to consider what requirements the lender will have on this loan. Most lending institutions, such as RBC, CIBC, TD and Scotia Bank, require title insurance on a property before they will approve a mortgage.

The growing use of title insurance today has resulted in an elimination of certain search requirements for lawyers. However, allowing for savings on time and money for the purchaser.

Question 3: What is not covered under title insurance?

Answer: Title insurance, like any insurance policy, contains exemptions and restrictions of what will be covered. It is important to have a lawyer review the insurance policy to ensure that any searches that are not covered by the policy will be conducted by the lawyer.

Also, it is important for a purchaser to discuss with their lawyer any concerns they may have regarding the property that may affect the use of title insurance.

The purchase of your home will likely be the largest and most important investment you make in your life and having a qualified lawyer explain to you the protection this type of insurance offers can end up saving you thousands.