Area of Law: Real Estate Law
Answer # 398
Title InsuranceRegion: Ontario Answer # 398
What is title?
Title is a legal term meaning registered owner of real property. Title can be held by one person, or by two or more people as “joint tenants” or “tenants in common”. With both joint tenants and tenants in common, the property can be owned in whatever percentage shares the owners decide.
If the owners are registered as joint tenants, it means that if one of them dies, the property belongs to the surviving joint tenant. Only the last surviving joint tenant can leave the property to someone in their Will. If the property is held by tenants in common, however, if one of the owners dies, the property will belong to whomever is the beneficiary of the person’s estate. In other words, a tenant in common can leave their share of the property to whomever they wish in their Will because it does not automatically belong to the other tenant in common.
What is title insurance?
Although title insurance is not required in Ontario, it is a good option for homebuyers who seek additional protection when purchasing a home. Buyers can buy an insurance policy, which will compensate them if there is a problem with the title, including zoning problems or ownership issues. Title insurance can be purchased from a number of licensed providers. The most well-known is LAWPRO’s TitlePLUS insurance.
Whether you are buying a residential or commercial property, you are essentially buying the legal ownership, or title. Lawyers perform a number of administrative searches to ensure that buyers do in fact receive full legal title. Title insurance is an alternative to conducting a number of administrative searches. It is important to remember that title insurance does not cover all risks and does not replace legal advice when purchasing property.
The types of properties that can be insured include almost every kind of property, such as: houses, condominiums, cottages, rental units, vacant land, office buildings, shopping centres, warehouses and so on.
What is covered by title insurance?
Depending on the type of policy that is purchased, title insurance can cover such situations as:
- zoning problems,
- major outstanding work orders or liens against the property,
- liens resulting from unpaid debts, such as utilities, mortgages, property taxes, condominium fees, etc.,
- errors in surveys and public records,
- lawyer error, and
- title fraud.
It is interesting to note that many people who already own their homes and have paid off their mortgage are now buying title insurance as a means to safeguard themselves against title fraud. This occurs when fraudsters purport to be the owner of a property, or using stolen personal information of the real owner, transfer ownership to themselves. After doing this, the fraudsters then take out a mortgage on the property and abscond with the money. This tends to happen in cases where there is no existing mortgage on the property because it is easier to get a first mortgage from the bank.
With title insurance, because it is an insurance product, it is not necessary for the policyholder to prove negligence. This means that, in most cases, if a loss is suffered, the homeowner will not have to go to court and will be reimbursed relatively quickly.
What is not covered by title insurance?
What is not covered by title insurance will depend on the type of policy that is purchased, as well as what caused the loss. Some things that may be excluded are:
- title defects already known at the time that the insurance was purchased,
- environmental hazards,
- Native land claims,
- liens not included in public records, (e.g. unregistered encroachments), and
- zoning infractions committed by the policyholder.
As with all types of insurance, it is important to read the policy carefully and make sure you understand exactly what is and is not covered.
What are the different types of title insurance?
In addition to the different types of coverage, there are also different types of title insurance policies available. Two general categories of policies are Owner’s Policy and Lender’s Policy. The Owner’s Policy protects the owner from different kinds of title-related losses that are listed in the policy. It will set a maximum amount of coverage, which is usually the value of the property. The Lender’s Policy protects the lender, such as a bank, in case the mortgage is invalid or unenforceable. Generally, a Lender’s Policy provides coverage only for the amount of the mortgage.
For residential properties, the various types of insurance include: new homeowner and existing homeowner policies, and policies for lenders in a residential mortgage. For commercial (business) properties, title insurance policies are available for individuals who are purchasing commercial properties, and policies for lenders in a commercial mortgage.
Once title insurance is purchased, it remains valid for as long as you own the property. You do not need to renew it or purchase more insurance unless the value of your property increases beyond the policy limit. In that case, you may decide to purchase additional insurance to cover the increase in value. Also, the cost of the insurance is a relatively small, one-time fee (called a premium) of about $300 – $500 depending on the insurance company you choose and the value of the property. Since, in addition to the insurance protection that title insurance provides, it also eliminates the need for many administrative searches, the cost of title insurance will be offset by the reduced search fees. For a list of licensed title insurance providers, visit the Financial Services Commission of Ontario’s website at fsco.gov.on.ca.
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