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Your property title is the official legal record showing the owners’ names and other important details regarding the property’s ownership. The title, therefore, provides legal proof of ownership. If there is any defect in the title, it prevents you from freely enjoying your property’s full use and rights.
You may have heard that title insurance can step in to protect your rights as a titleholder. How does it work? Is it expensive and should you get it? To shed more light on this, let’s explore how title insurance works in Canada.
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What is title insurance?
Title insurance protects the owner or title holder from any property or financial losses arising from problems with the legal title. It also guards against losses caused by any other issues that affect the owner’s legal right to use and enjoy their property.
Title insurance also covers the lender against losses that arise in similar circumstances.
What does title insurance cover?
Title insurance protects the owner against defects in the legal title of the property. That means if a third party claims they had the legal right to ownership of your property before you purchased it, title insurance will cover the legal costs of settling the dispute and reestablishing ownership.
It also covers any associated risks that impede the use and enjoyment of your property, as well as your ability to sell or mortgage it. Below are some of the risk factors from which title insurance can protect you.
Fraud
Fraudsters can forge or steal your identity and sell the property as their own. The fraudsters may even take out a new mortgage on your property and pocket the funds.
Errors
Title insurance likewise protects against title defects caused by errors in the public records, lands office, or surveys.
Unregistered easements
These come to light when someone else has a right to use part of your property, and you didn’t know about it before you closed the purchase.
Pre-existing liens
Liens on the property due to the previous owner’s use, such as unpaid property taxes or utility bills, are also covered by title insurance.
Title insurance provides cover against most risks and infringements on your rights of ownership. However, there are some exemptions that a title insurance policy will not cover.
Title insurance does not provide cover against:
- Environmental issues like soil contamination
- Title issues that you knew about before buying
- Violations to zoning bylaws or building codes that you wittingly or unwittingly caused, such as renovations that break bylaws
- Water potability
- Tenant issues
- Previously unknown liens (or other issues omitted in the public records)
As a policyholder, it’s essential to verify your policy’s details and fine print to know what you’re covered against and any matters that fall outside your coverage.
How does title insurance work?
Buyer’s title insurance is optional in Canada. Paying the premium is entirely at your discretion. It’s a commonplace to buy title insurance when you first close the deal on your home. However, because the policy deals with past events before you assumed ownership, you can still get title insurance even if you are already a property owner.
Title insurance will cover the cost (up to the maximum coverage) arising from legal proceedings concerning ownership of the property. It deals explicitly with claims brought against the policy owner. It will not, however, cover the cost of any lawsuits initiated by the policyholder.
What types of title insurance are there?
There are typically two categories of title insurance. The first covers the homeowner, while the second protects the lenders (the bank or lender issuing the mortgage).
Lender’s title insurance cover
The lender’s policy protects the issuer of the mortgage in the event of any disputes or issues arising from the property’s ownership. It covers the duration of the mortgage.
Homeowners title insurance
The homeowner’s policy protects the title holder’s interest against claims to the property and other surrounding issues. The cover is valid for as long as the homeowner retains ownership.
How much does title insurance cost in Canada?
The cost of title insurance will depend on several factors like
- The value of the home
- Your location
- Type of property
You can pay as little as $150 or upwards of $400.
For example, for a home valued below $500,000, title insurance may cost between $200 and $275 in Alberta. In Ontario, you will pay an average of $250
In most cases, the cost will be a one-time fee. Once you pay the fee at closing, a homeowner’s policy will typically remain valid if the property doesn’t change ownership. Some policies will allow you to pass on title insurance to your heirs or children.
Do I need title insurance?
Title insurance is not a legal requirement in Canada. In most provinces, for example, Alberta and Ontario, there is no requirement for title insurance. However, life is unpredictable; no matter how unlikely some risks may seem before you encounter them, it may be prudent to get this type of coverage.
Title insurance provides assurance that your home’s ownership and rights thereof are protected. It’s a worthwhile investment, given that you only pay the premium once to get cover that lasts the duration of your property ownership.
Additionally, title insurance is a requirement with some mortgage lenders. Lenders prefer protecting themselves against any potential losses, including those arising from property ownerships. In cases where your mortgage lender requires it, you will need to pay the premium.
Is title insurance worth it?
Title insurance works by defending your property title from errors, misrepresentation, and fraud. While title insurance offers protection, it does not act as a replacement for legal advice when you’re buying a property. It may be prudent to defer to your lawyers when it comes to deciding on the policy.
