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Title Insurance Explained

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What is Title Insurance?

When you purchase a home, you are purchasing more than the land and the physical structure(s). You are also buying a title – the legal term for the right to own the property. Title insurance protects your ownership against any losses you may incur due to undetected title defects (see below). Title insurers assume the risk in a real estate transaction – meaning that if there is something wrong with the tile, the insurer will take responsibility. Having title insurance also facilitates the closing of your home. If issues are discovered that can’t be rectified by your planned closing date, title insurance will make sure you are still able to close on time.

Types of Policies

There are two types of title insurance: an owner’s policy and a lender’s policy.

An owner’s policy is not mandatory but is highly recommended. It provides great value by protecting buyers against any title related problems that may arise during, at, or after closing. Under the owner’s policy, various risks such as title fraud, encroachment issues, unknown title defects, existing liens against the property’s title, 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, and the legal fees to address the situation are covered.

Lenders may require a buyer to purchase a separate lender’s title insurance policy to protect the bank’s interests in the property should a problem with title arise. A lender’s policy is in effect until the loan is repaid.

How Much is Title Insurance in Ontario?

Unlike most insurance policies that you pay, title insurance is paid once, upon closing and is valid for the entire time you own your home. The average cost of title insurance in Ontario is around $300 and is normally purchased through your lawyer. The cost of your policy will depend on the type and cost of the property you are purchasing. Title insurance eliminates the need for your lawyer to conduct many expensive searches, so you will likely end up saving money by buying title insurance. By purchasing title insurance, you may also eliminate your bank’s requirement for a survey, also saving you money.

How to Obtain Title Insurance

Title insurance can be obtained through a buyer’s lawyer, a title insurance company or an insurance agent/broker. A buyer’s lawyer has the duty of explaining to their client what the title insurance covers, what it excludes, the advantages, the conditions, and the limitations of the various options. Lawyers are required to maintain ethical standards and are not permitted to receive any compensation, directly or indirectly, from a title insurance company, agent, or intermediary for recommending a specific title insurance product to a buyer.

What Is Not Covered by Title Insurance?

Not all issues that may arise during the purchase of a home will be covered by title insurance. Known title defects that were revealed to you before you purchased the property, environmental hazards such as soil contamination, native land claims, problems discoverable by a new survey (e.g. discrepancy in lot size), liens and encroachments not recorded in public records and zoning bylaw violations from changes, renovations or additions to the property are all not covered by title insurance.

By carefully reviewing your policy, you should be aware of exactly what is and what is not covered by your title insurance before agreeing to the policy.

Title insurance does not provide compensation for non-title related issues. It is not a home warranty or home insurance policy and only provides protection for issues relating to the title of your property.

Extended Title Insurance

For an additional fee, some title insurance companies may also offer you protection from additional risks that are not covered by a standard title insurance policy, such as identity theft and certain known title defects. Speak to your lawyer, title insurance company, or insurance agent/broker to determine if you require extended or additional title insurance coverage. They can compare several different title insurance products and recommend the product that would best meet your needs.

When to Purchase Title Insurance

Title insurance is usually purchased when you buy your home. However, you can also purchase title insurance anytime after you purchase your home. It is important to note that existing homeowner policies are slightly different than policies obtained at the time a property is purchased. You should speak to a lawyer about the differences.

Thank you for taking the time to read this article. If you would like to work with a Realtor to further discuss the process of buying a home, please feel free to get in touch.

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