When you flip through the real estate listings each week you regularly see that sellers are offering to provide title insurance to the buyer of their home. Why would they do that and why would you want title insurance?
First, a seller may provide title insurance to a buyer in place of a Real Property Report (RPR) and a letter of municipal compliance. A Real Property Reports is a document that shows the location of all the buildings and fixtures, for example a deck, relative to the property boundaries. A letter of municipal compliance is a letter from the municipality, for example the City of Medicine Hat or the Town of Redcliff, that states whether the seller’s property meets or breaches the municipal bylaws for front, back and side setback requirements. In Medicine Hat a Real Property Report costs approximately $550.00 and the letter of municipal compliance costs approximately $70.00. Compare that to title insurance, which costs approximately $229.00.
On the other hand, a seller may offer to provide title insurance in place of an RPR and letter of municipal compliance because they know that the property does not comply with the municipality’s current bylaws. However, title insurance does not protect a purchaser who buys a house that the purchaser knows has a known bylaw non-compliance issue at the time of purchase.
Even if a seller is not offering to provide title insurance to you as the buyer of the seller’s home, you should discuss with your lawyer the benefits of purchasing title insurance for you as there are many other benefits to purchasing title insurance on your property. It may be the case that a seller who has owned the property for a short period of time may not honestly know that a portion of the house was built without a permit by the owner previous to them.
Title insurance may protect the purchaser if the history of the home’s building and development is unknown. A home’s basement is regularly not developed at the same time as the rest of the home; rather, the basement is not developed until much later, and in many cases this is by the homeowners themselves or their family and friends. Often, when these basements are completed, building and development permits are not obtained or final municipal inspections are not performed. This means that the municipality has not certified that the renovations have been done to the required standard. If in the future a city inspector knocked on your door because they have learned that your basement has now been developed, and the city does not have a record of the permits being taken out, they will check the workmanship performed. If they find any problems with the job completed the inspector will advise you that the work needs to be completed and a timeline for completing this work. The cost of completing this work will be borne by the homeowner. If the homeowner has title insurance and the city is making them make changes to their property as a result of a previous owner not getting a building or development permit, then your title insurance will cover the renovation costs.
Title insurance also protects the owner of property in two specific cases of fraud and forgery. The first example may occur when you are away on an extended vacation. A fraudster may assume your identity and enter into a real estate purchase contract to sell your home. You may return from your trip to find out that you no longer own your home. A second situation can arise where you have a lot of equity in your home and a fraudster attends at a bank assuming your identity and puts a line of credit or mortgage against the title to your home, without your knowledge. In either of these cases, the person taking these actions is fraudulent and if you have title insurance, the insurance company will incur the cost of clearing title to your property.
It is also important to note that Title Insurance can be purchased at any time as long as you do not know of an existing problem with your property. So, if you are not buying a new home, but would like to purchase Title Insurance on your current home that can also be done, but it will not protect you for developments without a building permit that you know about.