Why Use Title Insurance When Buying A Home?
By Jan Jaluvka
Since the late 1990’s title insurance has gained increasing popularity in Ontario. Today, it is now the most frequently-used method of assuring title to property in home purchase transactions. When you look at the benefits of using it when buying a home you can immediately see why.
Before proceeding further, we need to understand why getting good title to a property is important. Good title ensures that you as a home buyer are the only owner of the property and that no other party has any interest, claim or lien on the property that you are not aware of. Good title also means that your ownership interest in the property is correctly and officially registered in the Ontario land registration system. Finally, good title is necessary for you to be able sell your property or put mortgage financing on it in the future.
In the past, in order for a home buyer’s lawyer to assure good title to a property being purchased, he or she was compelled to engage in a process of conducting numerous and varied searches and inquiries with various government authorities and agencies. This process grew to become very expensive and inefficient as the government search costs kept escalating and their response times grew longer. This was all necessary to protect the buyer’s and the mortgage lender’s interest in the property because the lawyer was required to provide a lawyer’s opinion on title to both the home buyer and mortgage lender that the title was good and that marketable.
The lawyer’s opinion on title continues to be an available method of assuring title when purchasing a home or other property in Ontario and, despite the above-noted drawbacks, depending on the particular situation, it may still be the preferred method to employ.
There are now two additional methods of assuring title to property-the first being title insurance and the second being TitlePlus which, essentially, is title insurance with legal services insurance coverage added.
So what is title insurance as it applies to buying a home? Briefly stated, it is an insurance policy issued by an insurance company which insures or indemnifies the home buyer and mortgage lender (where mortgage financing is involved) 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 title from the home buyer and mortgage lender to the title company.
Title defects and other related legal risks typically covered by title insurance upon a policy taking effect include:
1. Another person or entity having an ownership or other interest in your property whether or not it appears on the registered title;
2. Any mortgage or lien affecting the property;
3. Any lien resulting from a court judgment, property tax arrears or public utility arrears;
4. Any unregistered hydro easement;
5. Any improperly completed, signed or registered documents;
6. The invalidity of your title due fraud, forgery, duress, incapacity or impersonation;
7. Forgery of a document after the policy takes effect under which another party claims an interest or lien against your title;
8. An expropriation of all or part of your property;
9. The lack of a right of access to and from your property;
10. Your inability to legally require another party to complete a purchase of or extend a mortgage loan upon the property due to your title being unmarketable or to an infraction or adverse matters which would have been revealed by an up-to-date survey of the property;
11. Your inability to use your property as a single or multi-family residence as provided for in your agreement to purchase the property; and
12. An encroachment or building setback deficiency which you are forced to remedy by a court or other authority (other than any involving a fence or boundary wall).
Title defects and other related legal risks typically excluded from title insurance coverage include:
1. Any environmental hazards; and
2. Any defects or problems which you agreed to assume or be responsible for when you entered into the purchase contract or which you knew about but failed to disclose to your lawyer or title insurer.
The other method of assuring title, TitlePlus, in addition to providing the title protection discussed above, goes a step further in providing direct insurance coverage against any financial loss you might sustain in the event that your lawyer makes any errors or omissions in handling the home purchase transaction on your behalf. This coverage enables you to seek immediate recovery from the title company without having to sue your lawyer.
As illustrated above, title insurance provides protection against the vast majority of title defects and other related legal risks likely to arise upon the purchase of a home. Like all insurance, it doesn’t protect against every potential title-related loss but rather against those which occur most frequently.
In the event you sustain a financial loss arising from a title defect or related risk covered by the title policy you would proceed to make a claim for compensation according to the procedures outlined in the policy in much the same way as you would if you were making a claim under your automobile or house insurance policy.
Both title insurance and/or TitlePlus are now widely accepted by mortgage lenders including the major banks, trust companies, credit unions and private lenders. As a condition of lending money under a mortgage, lenders usually require a survey of the property prepared by an Ontario Land Surveyor. Such a survey usually costs at least $750.00 depending upon the particular property. However, where the home buyer obtains title insurance for their purchase transaction, the buyer is not required to purchase a survey, since the policy issued by the company satisfies the lender’s survey-related concerns. Needless to say, dispensing with the expense of a survey results in a significant cost saving to the home buyer/borrower.
Other cost savings result from using this form of title protection. This occurs because some searches and inquiries normally required for a solicitor’s opinion on title are dispensed with when using title insurance because the title company assumes and insures against the risk of any defect or infraction which such a search or inquiry would have disclosed. With the need for these searches and inquiries eliminated, the resulting cost savings is often enough to completely offset the cost of title insurance and in many cases actually produce a net reduction in costs, especially when you include the survey cost savings referred to above.
In my experience, the cost savings of title insurance versus lawyer’s opinion on title make it a “no brainer” decision for most home buyers. The cost of title insurance and TitlePlus coverage currently ranges between approximately $260.00 and $300.00 which is a one time cost payable upon the closing of the transaction.
Another benefit of using title insurance is that it helps to streamline the processing of the purchase transaction. With fewer searches required under this form of title protection, the long response times of some government agencies and authorities are eliminated and this enables your lawyer to obtain assurance of your title faster and further assists in the completion of the closing of the purchase on time on the scheduled closing date.
However, it is important to note that, while title insurance eliminates the requirement for some searches, your lawyer must still complete the other more important required searches and conduct the necessary due diligence upon your behalf in order that you receive proper assurance of title from the title insurance company. He or she is obliged to meet the same high standards of competence and care without compromise which is demanded when providing a solicitor’s opinion on title. This is illustrated by the fact that once his or her title investigations and other investigations are completed, your lawyer must provide a certificate or guarantee regarding the title of the property to the title company which, in turn, then issues an insurance policy to you to protect your ownership interest in the property.
When purchasing a home, your choice from among the three methods of assuring the title to property is a decision which should be made in consultation with a knowledgeable, experienced real estate lawyer. He or she will be able to assist you in making the most suitable choice for you and your specific situation.
This article has dealt with some of the important issues involved in using title insurance to purchase a home in Ontario. If you are considering purchasing a home and/or obtaining such insurance, you should obtain proper legal advice from an able, experienced real estate lawyer.
For other legal articles dealing with real estate please see the following: Buying a Home in Ontario, The Land Transfer Tax Rebate for First Time Home Buyers in Ontario – Do You Get It? and Selling Your Home in Ontario.
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