New Realities Require New AgreementsApril 18, 2019
Family Business and Personal Estate PlanningJune 12, 2019
Spring is here and that means the real estate market is picking up speed. Many Hatters will be buying and selling homes in the coming months. As we get ready to for the busy real estate season, I thought it would be helpful to address a topic unfamiliar to many people: Title Insurance.
When you buy a property, your lawyer will likely ask whether you are interested in purchasing title insurance. Most clients I meet with are unfamiliar with title insurance and the value it can bring to your property. This article explains title insurance so you can decide whether the product is right for you.
Buying real estate is a big investment and each transaction has risks, both known and unknown at the time of purchase. Title insurance offers protection against many of those risks and provides coverage against titled and non-titled defects.
Here are some common situations where title insurance can provide protection:
- Property defects discovered after the time of purchase. For example, a basement was finished without the proper building permit; or a deck was constructed without a deck permit. These are examples of non-titled defects. The City could require you, the new homeowner, to fix the issue in accordance with current building code requirements, which could be costly!
- Titled defects, such as Title Fraud and Mortgage Fraud. A fraudster steals your identity and registers a mortgage against your property while taking off with the mortgage proceeds (yes- this does happen!). The cost to rectify or reclaim title can be huge.
- Tax and utility arrears – if the previous homeowner had an outstanding balance on their tax and/or utility accounts, as the new homeowner, you could be required to pay these.
- Real Property Report (RPR) not available. Sometimes a buyer and seller will agree to waive the requirement for the seller to provide an RPR. Title insurance will cover defects, such as encroachments, an RPR would have revealed. It’s important to note title insurance is not a substitute for an RPR. Title insurance should be viewed as an additional measure of protection to an RPR.
With a title insurance policy, you have protection from future losses that arise from defects in the property and events that occurred prior to purchasing the property.
Title insurance does not provide coverage of the following:
- Environmental issues, such as the discovery of mold or asbestos.
- Defects or risks the homeowner created himself.
- Defects or risks known to the homeowner and/or prospective purchaser, but not to the insurer, at the time the policy is issued.
Title insurance policies can be purchased in favour of the buyer/homeowner, the lender, or both. Many lenders nowadays require the buyer to purchase a lender policy before they will advance mortgage funds to complete the purchase. A lender policy provides the bank with protection on the priority and enforceability of the mortgage and title defects for as long as the mortgage is registered on title.
A homeowner policy is optional. It provides you with coverage for the length of time you own your home. The insurance premium (a one-time fee) is paid at the time of purchase. The cost of a title insurance policy is based on the purchase price of the property. Title insurance for a property valued at $450,000 or less will usually cost in the range of $180 to $200. The cost is relatively low compared to the price of your financial investment.
The next time you purchase property, think about whether title insurance may bring you value. Speak to your lawyer about the costs and benefits of a policy and what type of coverage you may need. Your lawyer may review the application form with you to confirm the details of the property being purchased. And if you choose to buy a title insurance policy, make sure to read your policy so you fully understand the coverage. The future is uncertain and title insurance can provide you and your property with financial protection if a problem arises down the road.