What is Title Insurance?
Title insurance is a unique form of insurance that a lender can use to protect his investment or a home owner can purchase to cover a property. Being a buyer, it protects your ownership continuously, from purchase until the day you sell your home. In case of death, the protection is transferred to the heirs of your building.
Like all insurances, title insurance contains inclusions, exclusions, conditions relating to complaint, and description of the options available to the insurer when a claim is made. The contract is usually written in a language specialized and hermetic. In some cases, you may need an attorney to assist you in audits and negotiations in order to ensure that you fully understand the nature of the coverage.
Do you need title insurance?
Title insurance is not mandatory; it is optional. But it may not be a bad idea to purchase it. Even if you are the rightful owner of a house, there are circumstances where your title can be questioned: real estate fraud, clerical errors, undisclosed heirs, omissions in deeds, unknown liens, and others. The policy can avoid you these troubles, regardless you are a buyer or lender.
When can you buy title insurance?
You can buy title insurance when you buy a building or when you renew your mortgage. It remains in force until the insured is the owner or, as applicable, the insured is the mortgagee. In case of selling or refinancing the property, a new policy must be purchased.
Title insurance is available for both commercial and residential properties, and both during purchase transactions as well as refinancing of properties. It can be purchased to expedite a real estate transaction in the absence of a certificate of location. Several lenders then accept title insurance instead of the certificate.
2 Types of Policies Available
There are two main categories of title insurance: a policy for lenders and one for homeowners.
1. For lenders – in this case, the policy covers lenders for the title. It ensures the security of the lender’s investment from the date of signing the contract. Generally, this protection is limited to the amount of the loan not the home equity. Therefore, as a buyer, to protect your equity in case of a title problem, you are obligated to purchase your own owner’s title insurance policy.
2. For owners – this policy offers protection equivalent to the market value of the property at the time of agreement signing of the contract. However, some title insurance can offer higher amounts of protection, in order to cover the increased value of the property over the years. Some companies also offer existing owner insurance, aimed at homeowners who have not procured title insurance when purchasing their property, but want to guard against any challenge to their title.
Other risks covered
Although it is called “title insurance”, this insurance is not limited to risks associated with real estate. It can covers other situations that may affect the right of use and occupation of the property which may cause financial loss to the owner.
Here are some examples:
Defects in the title – For example, four months after you bought a home, a stranger claims to have inherited and wishes to take possession of it.
Violation of the municipal regulations – You buy a house and live there. The terrace of the house was built without a permit, but you do not know anything. The city inspectors examine your home and discovered this fact and, even worse, note that the terrace is not in accordance with the state regulations. As a result, you must be moved.
Encroachment on a nearby lot – following a new survey, it is discovered that some of your property are on the neighbor’s land and he wants you to move on.
Fraud, forgery or identity theft – A fraudster steals your identity, and then takes out a mortgage on your property. He then flees with the entire money, leaving you with a large debt. In this case, the title insurance can save you from a lot head ache.
Existence of unknown easements – A few years after buying your home, you learn that a public utility has an easement on a significant portion of your land on which a swimming pool and a shed were erected. You oppose but the organization must undertake major work and asks you to move your shed and your pool. If you have title insurance, you can perform the relocation work at the cost of your insurance.
Others – Any other title issue that has the effect of harming your ability to sell, lease or mortgage the property:
- Errors in survey plans
- Errors that occurred during the search and title examination
- Irregularities that the certificate of location would reveal
- Legal loans taken for previous works to the date of the insurance.
What costs title insurance covers?
Title insurance also covers legal fees and other costs associated with a claim aimed at clarifying a title. The coverage of these charges is added to the amount of compensation that the insurer agrees to pay when there is a covered risk that cannot be corrected otherwise.
Generally, the risks covered by title insurance must be present or latent before the signing of the policy. To be compensated for the damage or loss, the insured must demonstrate that the insured risk has occurred, and establish the extent of the damage. It does not have to prove that the loss resulted from the fault of a third party.
What Title insurance generally does not covers?
- Hidden defects
- Land claims by Aboriginals
- Breaches of zoning you cause
- Wells and/or septic tank problems
- Quality of construction of the property
- Encroachment by fences, hedges and walls
- Environmental risks such as soil or water contamination
- Non-compliance of the buildings with the Public Buildings Act
- Damages which could be covered by home insurance: theft, fire, vandalism, water damage, etc.
- Defects in title that you know before buying your property and you have not reported to the insurer
- Expropriations: Takeover of a private property by agency for a purpose deemed to be in the public interest.
Who can sell title insurance?
Only a representative authorized to sell general insurance can sell title insurance. The seller has to assess your needs and ensure that the products they offer will meet your requirements. Nevertheless, a notary may, if you entrust him a mandate and if he is not paid by the insurer to do so, represent you. In this case, you representative will have to receive a legal document from you to confirm he is your mandatary, which allows him to legally transact business for you.
How much is title insurance?
This type of insurance is usually purchased through a bonus payable in one payment. Its price may vary according to:
- Value of the property
- Building type: commercial, condo, new residence or not…
- Type of insurance purchased: for homeowners, lenders, or both;
- Time when the insurance is purchased: at the time of purchase of the property or upon renewal of the loan.
Before buying title insurance, check the following:
- Shop around and compare with several insurers or authorized representatives in order to obtain the best price possible.
- Once you receive a good offer, make sure the person selling you the insurance is authorized by the Authority.
- Now that you know you are dealing with a real seller or mandate, make sure the insurance amount is adequate.
- Ensure the effective date of the insurance is the same as the date of signing of the purchase of the property.
- Read the contract carefully. Exclusions can vary from one insurer to another. Check all the risks that are covered and uncovered.