My real estate representative told me I should consider title insurance when I buy a home. Is it really necessary? What does it cover?
Although title insurance is not a requirement in Ontario, I recommend that every buyer consider coverage when they buy a home. “Title” refers to your legal ownership of a property, as registered in the government’s land registration system. Title insurance covers losses related to the property’s title or ownership, including:
- Title issues that prevent you from having clear ownership of the property.
- Existing liens against the title, for example if the previous owner had unpaid property taxes.
- Issues related to encroachment on someone else’s property, for example, if a structure had to be removed because it is partially on your neighbour’s property.
- Errors in surveys and public records.
- Any other title-related issues that could affect your ability to sell, mortgage or lease your home in the future.
Basically, title insurance offers a wide range of coverage that can provide major benefits in case something goes wrong.
Title insurance can also come in handy if title registration in your name can’t occur on the date your deal is supposed to close. The “gap” coverage in title insurance will allow your lawyer to close the sale of the property even if registration is delayed.
Another key protection is title fraud, which occurs when a criminal uses stolen or forged documents to transfer your home’s title into their name, without your knowledge. They can then obtain a mortgage on the home and disappear with the money. Although title fraud is relatively rare, it does happen, and title insurance may cover the legal costs of restoring the title to your name.
Some title insurance also includes coverage in case your lawyer makes an error while handling the real estate transaction.
I always tell buyers and sellers to thoroughly read and understand what they sign, and that applies just as much to a title insurance policy. Read the policy thoroughly and ask questions so that you understand the coverage you’re getting. If you’re not sure about something, ask your lawyer.
Although title insurance is a one-time fee, the coverage lasts as long as you own the property.
However, it’s important to remember that title insurance is not an excuse not to do your due diligence, nor is it a home warranty or home insurance. For example, theft, or damage due to fire, have nothing to do with the title, so they wouldn’t be covered.
In addition, title insurance typically won’t cover:
- Title defects you were aware of before you purchased the property.
- Environmental hazards like soil contamination.
- Native land claims.
- Problems that would only be discovered by a new survey or inspection of your property.
- Matters not listed in public records, like unrecorded liens or encroachments against the property.
- Zoning bylaw violations from changes, renovations or additions that you created yourself.
To learn more, the Financial Services Commission of Ontario offers a comprehensive guide to title insurance that is very helpful.
You can purchase title insurance through your lawyer, directly through a title insurance company or through an insurance broker.Joseph Richer is Registrar of the Real Estate Council of Ontario (RECO). He is in charge of the administration and enforcement of all rules that govern real estate professionals in Ontario. You can find more tips at reco.on.ca, follow on Twitter @RECOhelps or on YouTube at http://www.youtube.com/RECOhelps.