Title Insurance: The Basics
Title insurance is an insurance policy issued by an insurance company, which insures or indemnifies the home buyer and mortgage lender (where mortgage financing is provided) against loss or damage sustained as a result of covered title risks and defects. It further insures against various problems which would have been disclosed by an up-to-date survey of the property and against the property’s failure to comply with municipal or other applicable regulatory authority requirements. In essence, it transfers the risks connected with the property’s title from the home buyer and mortgage lender to the title insurance company. While coverage varies depending on the insurer, below is a general overview of title insurance policies.
What Does Title Insurance Cover?
Typically, title insurance will cover:
- Unknown title defects (issues that prevent you from having clear ownership of the property);
- Liens and encumbrances against the property (ex. when the previous owner had unpaid debts from utilities, mortgages, property taxes secured against the property);
- Rights of way or easements over the property;
- Someone else having an interest in the lands, such as adverse possession rights;
- Issues that would have been discovered by an up-to-date survey;
- Irregularities in the title documents;
- Pedestrian and vehicular access to the property;
- Zoning infractions;
- Outstanding building permits or work orders;
- Issues related to septic systems and wells;
- Non-compliance with restrictions or agreements registered on title
- Loss or damages suffered as a result of fraud/forgery (ex. identity theft);
- Lawyer negligence
If the insured individual suffers a loss that is covered by title insurance, a claim will be made under the policy. The title insurer would then have the obligation to satisfy the claim according to the rights and obligations as set forth in the policy.
Title Insurance: What Is Not Covered
- Known title defects (if purchaser or mortgagee was made aware of a title defect before the property was purchased, title insurance will not cover that defect);
- Environmental hazards (ex. soil contamination);
- Native land claims;
- Septic systems (functionality);
- Problems that would only be discovered by a new survey or inspection (such as a smaller lot size than originally anticipated);
- Personal Property Security Act (PPSA) – title insurance does not cover chattels, it only covers title to land;
- Matters not listed in public records, such as unrecorded liens;
- Zoning bylaw violations caused by changes, renovations or additions performed by the policy owner;
- Certain government rights in the land (such as the right of expropriation);
- Problems the buyer agreed to assume but failed to inform the title insurer or lawyer about;
- The buyer’s ability to change the use of the land or undertake renovations, construction or expansion.
How Long Does The Coverage Last For?
For the homebuyer, title insurance lasts for as long as the homebuyer continues to hold title to the land. Some policies also protect those who received title as a result of the purchaser’s death, or certain family members (e.g., a spouse or children) to whom the property may have been transferred for a nominal consideration.
For lenders, title insurance lasts for as long as the mortgage remains on title. A lender covered under a title insurance policy is insured in the event the lender realizes on its security and suffers actual loss or damage with respect to a risk covered under the policy. Lenders are usually covered up to the principal amount of the mortgage.
Premiums are paid only once when the policy is issued.
MORE Residential Real Estate FAQs
Here are links to some of the most common questions we receive:
- A guide to our services when you are purchasing a home
- A guide to our services when you are selling a home
- When should I contact my lawyer and what info will they need to complete my purchase?
- Handling utilities and insurance when purchasing or selling a home.
- What new home buyers should know about Tarion Warranty Corporation
- Non-residents guide to purchasing real estate in Canada
Still have questions? Please contact a member of ou residential real esate team. We’d be pleased to help.