The Importance of Purchasing Title Insurance

In the whirlwind of excitement that surrounds purchasing a new home, many buyers fail to grasp the significance of title insurance. Frequently, it’s a cost omitted from their initial financial considerations, catching them off guard when it comes time to settle. Yet, as this blog will demonstrate, those who invest in title insurance significantly fortify their ownership stake in the property, ensuring it remains secure against unforeseen challenges. WHAT IS TITLE INSURANCE and WHAT DOES IT COVER? “Title” is a legal term that refers to one’s legal ownership of a property. The individual/corporation that owns title to a property, owns that property. Title insurance then, is an insurance policy that protects residential and commercial property owners against claims concerning the title of a property. While title insurance is not mandatory in Ontario, most lenders require that purchasers obtain title insurance during the time the property is purchased. If the buyer purchases a title insurance, it protects the buyer against most title problems, whether they arise before or after the purchase transaction is completed. Common losses that are protected by title insurance include:

• • • Unknown title defects that impact your ownership of the property;
    • Conflicting ownership interest in the property;
    • Improperly signed documents;
    • Defective registration of an instrument;
    • Existing liens against the property’s title, such as unpaid debts secured against the property by a previous owner, including:
      • • Utility bills
        • Mortgages
        • Property taxes
        • Condominium charges
    • Encroachment issues (e.g. a structure on your property that encroaches on your neighbour’s property);
    • Errors in surveys and public records;
    • Other title-related issues that may affect your ability to sell, mortgage, or lease your property in the future; and
    • Title fraud.[1]

Along with the aforementioned coverages, most policies also include gap coverage. This coverage is meant to protect the buyer from title problems that can arise as a result of the failure to register documents on the closing date for reasons such as traffic problems that delay couriers or power outages. For instance, if a deal that is scheduled to close on Friday ends up being delayed as a result of a power outage, the lawyers can undertake to complete the registration on the following business day. If any title problems arise during the Friday and the following business day, the buyer and mortgagee will be protected with gap coverage. In this instance however, there are certain exclusions that apply including:

• • • Problems that the purchase agreed to accept in the Agreement of Purchase and Sale;
    • Certain government right sin the land;
    • Certain expropriations;
    • Environmental and conversation authority issues; and
    • Native land issues.[2]

WHAT IS NOT COVERED BY TITLE INSURANCE? While there is a wide range of coverage, there are also certain types of claims that are excluded from coverage. These typically include:

• • • Known title defects (known to you before you purchased your property)
    • Environmental hazards (e.g. soil contamination)
    • Native land claims
    • Problems only discovered by a new survey or inspection of your property. For example, the property is smaller than originally thought
    • Issues that were not listed in public records, such as unrecorded liens and encroachments
    • Zoning bylaw violations from changes, renovations or additions to your property or land
    • Title insurance does not provide compensation for nontitle-related issues The types of claims that are excluded from title insurance are those that a real estate lawyer would be able to assist with and ensure that the purchaser is covered. Certain searches and provisions in the Agreement of Purchase and Sale would protect buyers from these types of claims and strengthen the protection provided by title insurance.

CONCLUSION

Accordingly, it is recommended that buyers purchase title insurance when purchasing a new property. There are many unforeseen risks that are associated with the purchase of a property that the buyer can protect themselves against by incurring the one-time cost of a title insurance policy. Our real estate team at DBS LLP will be able to assist in the purchase of your property and ensure that your rights are always protected!       _______________________________________ [1] Ontario Residential Real Estate for Practitioners, J.M. Wolf, pp. 213-214; Understanding Title Insurance, Financial Services Regulatory Authority of Ontario [2] Ontario Residential Real Estate for Practitioners, J.M. Wolf, pp. 214