Title Insurance – A Primer
What is Title Insurance?
Title insurance is a type of insurance policy that protects property owners and lenders from losses associated with title issues and other covered risks that exist at the time of your purchase but are unknown to you at that time. Title insurance allows purchasers to insure against future potential title issues, rather than conducting additional due diligence at the outset of the transaction- such as “off title” searches, or the need for a Buyer to commission a survey (if one is not available pre-closing).
This coverage is typically required by your lender to close your transaction. A one-time fee is paid on closing and your coverage commences from the moment the deed is registered until such time as you sell the property. There is no cost to submit a claim, and you do not need to renew your coverage during the life of your ownership.
What does it Cover?
The following is a non-exhaustive list of potential issues that a standard title insurance policy may cover:
- Title defects.
- Unmarketability of title that an up-to-date survey would have revealed.
- Legal issues involving access.
- Encroachment issues, adverse possession, property line disputes.
- Easements over the property (i.e. Someone has a legal right of way over the property).
- Liens or charges on title.
- Work orders from a municipality.
- Tax or utility arrears from previous Owner.
- Certain violations of municipal regulations.
- Title fraud or forgery (i.e.: mortgage fraud or unauthorized sale of property).
Contact your title insurer as soon as you become aware of an issue. They will advise if you need to submit any documentation or supporting evidence and then will confirm if coverage is available for your issue.
What Types Of Property Can Be Insured
- Residential dwellings of up to six units.
- Residential vacant land.
- Leased Land.
Commercial coverage is also available for non-residential units.
What may not be covered?
Title insurance policies often contain numerous exemptions or restrictions. Some title insurers will provide additional endorsements, depending on the circumstances at hand, to meet your specific needs. If title insurance does not insure over an issue, you will need to speak with your lawyer for further direction on how best to proceed. As always, it is recommended that you review your coverage prior to closing to ensure the policy will meet your needs.
The following is a non-exhaustive list of issues that are not typically covered by a standard title insurance policy:
- Physical and structural defects to the property
- Governmental expropriation or violation of certain by-laws
- Environmental risks
- Risks that are created by, allowed by, known to, or agreed to by the insured (i.e.: if you had knowledge of an existing issue prior to the issuance of your policy).
Is it mandatory to have this coverage?
Short answer: no. Title insurance is not mandatory if you purchase a property without financing. That said, if you are obtaining any type of secured financing for closing (mortgage, line of credit, etc.) your lender will require that you obtain lender coverage (at your expense) and most lenders now require that you also have an owner policy as well. Even for cash purchasers, it is strongly recommended that you obtain an owner policy for closing.
How much does a policy generally cost?
The cost of a typical policy (including lender coverage) often falls in the $300-$1500 range for residential properties – with the premium varying based on your purchase/mortgage amount. Also keep in mind that while your owner policy will cover you over the lifetime of your ownership, the lender policy will only cover the lender for the duration of the mortgage term. When you refinance, you would need to obtain a new lender policy
Can I Obtain Coverage After I Purchase?
Yes. A policy can be secured at any time (called “existing owner coverage”) – though if you purchase coverage after closing, your coverage would be limited to risks that would have been covered as of the date of your purchase, but that are unknown to you as insured. No coverage would be provided for issues that arose after your purchase date but before you obtain the insurance.
If you have concerns about coverage- either pre-closing or post-closing, it is best to speak with the insurer and your lawyer directly. While title insurance may provide coverage for certain losses, it is not an alternative to retaining a lawyer on your transaction and performing standard due diligence prior to closing.
If you have any questions or need assistance with your coverage, please get in touch and I will be happy to assist.