What’s Covered under Title Insurance?

Title Insurance Has Become Essential

In today’s real estate environment, Title Insurance has become an integral part of insurance protection for the buyer and their mortgage company. Not only does it spare a buyer the cost of an expensive survey which would otherwise be required to satisfy most lenders, coverage is fairly comprehensive.

The most common topics covered as suggested by First Canadian Title are as follows:

No Building Permits: A buyer may find out after closing that an improvement was made by the previous owner without a building permit. In such a circumstance the municipality can compel the subsequent owner to correct or remove the improvement. As building or renovating without a building permit is considered a title deficiency by the courts, it is coverable by title insurance. This coverage can spare buyers the cost of such a potentially expensive order. Some typical improvements made without a permit are finishing a basement, adding an addition, removing walls to redesign space, updating electrical/plumbing and building a deck.

Encroachments: Let’s say the previous owner accidently built a shed, garage, or a part of the home on a neighbouring property and it needs to be moved. Title insurers can protect the subsequent owner from financial loss arising from such an encroachment.

Fraud and forgery: As you may know, a fraudster can purchase a deed from the registry office. He then can easily create a fake deed by forging the legal owner’s name and transferring the property to himself. With phony ID, he can have an unsuspecting lawyer register the deed electronically in his name. He now obtains a mortgage on the property and vanishes, never making a payment. The mortgage defaults and the lender will go after the legal homeowner for the money.

According to First Canadian Title, “If someone forged homeowners’ signatures without their knowledge and registered a fraudulent mortgage on their home… A homeowner policy from FCT can cover the legal expenses and costs to prove that fraud was committed.”

Tax and utility payments: Tax and water bills are often adjusted on closing to benefit the buyer if they are in arrears. If they are discovered after the closing of the sale the buyer’s lawyer typically contacts the seller’s lawyer in an effort to have the seller pay. If no response is received, a claim can be submitted to the title insurer who will pay the city plus any accrued interest.

Title defects: Title may be impaired due to a lien (in which the property is used as collateral on a debt), a mortgage, and a judgment by a court to pay a creditor or a tax authority. Many of these can be covered by title insurance, including unknown title defects that prevent you from having clear title.

Other Protections: Title insurance can also protect you from “errors in surveys and public records; and other title related issues that can affect your ability to sell, mortgage, or lease your property in the future,” according to the Financial Services Commission of Ontario.

Is Title Insurance Mandatory? Though not a requirement, most lenders today do insist on it.

Sources: First Canadian Title, Chicago Title, Investopedia, Ottawa Sun, shumanlaw.ca/