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What is Title Insurance?

Buying a home is one of the biggest investments you may make in your life,  so it’s essential to protect it. While many people are familiar with home insurance, another type of policy is equally important: title insurance. Whether you’re a first-time home buyer or a seasoned real estate investor, read on to learn more about title insurance in Ontario.

What is Title Insurance in Ontario?

Title insurance is a policy protecting homeowners and lenders from costs associated with defects or issues related to the title of a property. In Ontario, while title insurance is not mandatory, most lenders, including banks, credit unions and mortgage companies, require you to have a policy in order to take out a mortgage. 

Title insurance differs from other policies, like home or auto insurance. It provides protection for events that have occurred in the past rather than events that may happen in the future. These past unknown risks include undisclosed mortgages or liens, unregistered easements, defective titles, or title fraud.

What is a “Title?”

A title is the right of ownership. When you purchase a property, you receive the “title,” which must be registered with your provincial government.

When you buy a property in Ontario, a title search occurs to ensure the seller has a clear and marketable title. However, even with these searches, there may be hidden issues that  go undiscovered.

What Does Title Insurance Cover?

While policies may vary, title insurance usually protects against issues such as:

  • Property title liens
  • Easements
  • Fraud
  • Title defects
  • Record errors
  • Zoning violations

Additionally, title insurance protects you from legal costs associated with proving your ownership or contesting other party claims on your property. The above risks can be categorized into three areas: Transactional, title, and off-title issues.

Transactional Issues

Transactional issues are problems that arise during the buying or selling of a property. Title insurance can provide coverage for situations like:

  • Fraud or forgery: If someone forges a signature on a document or fraudulently sells a property they don’t own, title insurance can cover resulting financial losses.
  • Mistakes in legal documentation: Title insurance can cover losses when a document is improperly executed or recorded. For example, if a deed is recorded with inaccurate legal descriptions of the property, your policy can cover you.

Title Issues

In general, title issues can affect the legal ownership of a property. Some examples of these situations include the following:

  • Liens: A lien is a legal claim on the property by someone else due to issues from the previous owner, like unpaid debts, taxes, or mortgages. Typically, if the seller discloses a lien before the sale, the responsibility would transfer to you. However, if you buy a house without knowing about it, title insurance can help you avoid this.
  • Easements: Easements are legal privileges that grant the right to utilize or enter another individual’s property for a defined purpose. For example, a utility company might have an easement to access the property to maintain power lines. Title insurance can cover you if an easement was not adequately disclosed during the sale or if it’s invalid or improperly executed.
  • Public record errors: Errors in the public records related to the property, like misspelled names or incorrect legal descriptions, can result in unexpected costs.

Off-Title Issues

Off-title problems usually don’t relate to the legal ownership of a property but can still result in financial losses for you as the property owner. Examples include the following:

  • Zoning violations: Properties that violate local zoning laws may need to be torn down or rectified in other ways.
  • Building permit violations: If the previous property owner made modifications to the property without obtaining the proper permits, this might lead to high costs in the future.
  • Boundary disputes: These happen when a property encroaches on a neighbouring one, which may require support from a real estate attorney. 

Types of Title Insurance

Ontario generally has two main types of title insurance: owner’s and lender’s policies.

Owner’s Title Insurance

This type of policy protects homeowners to a specific limit against financial losses resulting from title defects. The property buyer typically purchases it at the time of the sale. Owner’s title insurance protects against the issues stated above for as long as the individual (or individuals) own the property.

Lender’s Title Insurance

Lender’s policies protect mortgage lenders against the same risks listed previously, which may render a property’s mortgage invalid. 

What Does Title Insurance Not Cover?

Generally, title insurance will not cover the following:

  • Known title defects disclosed before the policy was issued
  • Environmental issues (e.g., soil contamination)
  • Zoning violations from changes you’re responsible for
  • Non-title matters related to the property’s condition, like wear and tear, damage, or theft

Risks of Not Having Title Insurance

If you don’t have title insurance, you may be exposed to several risks, including the following:

  • Financial losses: Any financial burden resulting from defects of the title (e.g., liens, fraud, errors, and easements).
  • Legal expenses: If there are disputes over the property’s title, you may be responsible for paying legal expenses, like attorney fees and court costs.
  • Delayed or cancelled closings: Issues discovered with a title before closing may result in delay or cancellation. This can be a frustrating and costly experience, especially if you’ve already made plans to move into the property.
  • Inability to obtain financing: Lenders may refuse to provide loans if the title has a problem.
  • Risking peace of mind: Since many title issues surface after the sale, there is no way of knowing if you’re in the clear until they arise. Title insurance simply offers peace of mind, knowing your investment is protected no matter what comes up.

Do I Need Title Insurance?

Title insurance is not a legal requirement in Ontario, but it’s strongly recommended if you want to purchase a property. While it may be tempting to save money, doing so can expose you to many risks and financial losses, as discussed earlier. Aside from gaining peace of mind, mortgage lenders may require you to purchase title insurance for their protection. 

If you have more questions about the role of title insurance and mortgages, contact the Chris Allard Mortgage Team. We’re here to ensure you have all the information you need to help you make sound home-buying decisions!

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