Title insurance in Ontario protects property buyers and lenders against title-related issues. This article provides an in-depth analysis of its significance, coverage, and legal implications.

This video below from LAWPRO explains the benefits of title insurance.

Source: LAWPRO: Why every homeowner needs title insurance

What is Title in Real Estate?

“Title” in real estate refers to legal ownership rights. It includes the ability to use, control, and transfer property, and the clarity and validity of the title are essential for a legally sound transfer of real estate. A clear title is verified through a title search and protected with title insurance.”Title” in real estate refers to legal ownership rights. It includes the ability to use, control, and transfer property, and the clarity and validity of the title are essential for a legally sound transfer of real estate. A clear title is verified through a title search and protected with title insurance.

What is Title Insurance?

Title insurance is indemnity insurance that offers protection against losses that may arise from title defects in real estate transactions. This insurance covers issues such as errors in public records, unknown liens, encroachments, and fraud that may not be discovered during a standard title search. Unlike traditional insurance policies covering future events, title insurance in Ontario covers past occurrences that could negatively impact ownership rights. It is a crucial tool in real estate transactions, offering financial protection and peace of mind by mitigating the risks associated with hidden title defects and ensuring smoother and more secure property transfers.

Examples of Title Insurance Protection

Protection Against Undisclosed Liens
: Consider a scenario where a homeowner in Ontario buys a property, only to find out later that the previous owner had not paid the property taxes, which led to a lien against the property. This places the new owner’s legal claim to the property at risk. However, if the homeowner had purchased title insurance, they may be protected against the financial loss caused by this undisclosed lien. This would ensure that they are not held financially liable for the previous owner’s unpaid taxes.

Protection from Boundary Disputes: If a homeowner in Ontario finds out that a part of their newly constructed garage is built on their neighbour’s land, it could result in legal disagreements and costly solutions, such as modifying or removing the structure. However, title insurance may provide coverage for the legal expenses incurred during the resolution of such boundary disputes and any financial loss caused by the encroachment. This way, title insurance secures the homeowner’s investment and interests in the property.

What is the Difference Between Home and Title Insurance?

Home insurance and title insurance are two different types of insurance policies that serve distinct purposes when it comes to property ownership.

Home insurance is designed to protect the physical structure of a home and the personal belongings inside from various risks such as fire, theft, natural disasters, and vandalism. It also includes liability coverage, which safeguards the homeowner if someone gets injured on their property and decides to sue. Home insurance policies are ongoing and require regular premium payments. They cover future events and offer tangible protection, addressing the physical aspects of the home and the immediate risks associated with day-to-day living.

On the other hand, title insurance focuses on protecting homeowners and lenders from potential legal and financial issues related to the property’s title. It protects against undisclosed liens, boundary disputes, fraud, forgery, and issues in the chain of ownership that might emerge after the purchase of the property. Unlike home insurance, title insurance is a one-time purchase made at the time of acquiring the property. It covers events that occurred in the past but were unknown at the time of purchase. It does not cover any physical damage to the property but instead secures the legal ownership and ensures the homeowner’s rights to the property are protected against claims or legal disputes.

What Does Title Insurance Cover?

Title insurance provides coverage for a range of issues related to the legal ownership and title of a property. Key aspects typically covered by title insurance include:

  1. Defects in Title: This includes any legal right or claims not disclosed in the title, such as forgery, fraud, or errors in public records, which can challenge the legal ownership of the property.
  2. Liens against the Property: Title insurance covers undisclosed liens, such as unpaid taxes, mortgages, or judgments against the property that could become the new owner’s responsibility.
  3. Encroachment Issues: If a structure, like a shed or a fence, from a neighbouring property encroaches onto the insured property, title insurance can provide protection.
  4. Easement Disputes: Title insurance may cover issues related to access rights, such as a neighbor legally using part of the property without the new owner’s knowledge.
  5. Boundary Disputes: If a survey error leads to a dispute over property boundaries, title insurance can cover legal fees and other costs related to resolving these disputes.
  6. Ownership Challenges: Protection against claims by others who assert an ownership interest in the property, including undisclosed heirs.

It’s important to note that title insurance policies can vary, and specific coverage will depend on the terms of the policy. Also, title insurance typically does not cover issues that arise after the policy is purchased.

What is not covered by title insurance?

Title insurance, while comprehensive in many respects, does not cover every issue that a property owner might encounter. Here are some common exclusions:

  1. Known Defects or Title Issues: Title insurance does not cover defects or issues that were known to the buyer before the purchase of the policy.
  2. Property Zoning: Issues related to the property’s zoning are typically not covered. This includes any restrictions or limitations on its use.
  3. Property Taxes: Future property taxes or other government assessments after the policy date are not covered.
  4. Quality of Workmanship: Problems related to the quality of workmanship or construction on the property are not included.
  5. Routine Maintenance and Repairs: Costs associated with regular upkeep, maintenance, and repairs of the property are not covered.
  6. Loss of Property Value: Any decrease in the property’s value due to market fluctuations or other non-title related issues is not included.
  7. Property Defects Known After Purchase: Defects or problems with the property discovered after purchase, but not related to the title, are not covered.
  8. Damage to Property Structure or Contents: Physical damage to the structure of the property or its contents, which is typically covered by homeowner’s insurance, not title insurance.

Property buyers should thoroughly understand their title insurance policy, including its specific exclusions and limitations, to know what issues are and are not covered.

What are the different types of title insurance?

Title insurance comes in different types, primarily catering to the specific needs of property owners and lenders. The two main types of title insurance are:

  1. Owner’s Title Insurance: This type of policy is purchased by the property buyer or owner to protect their interests in the property. Owner’s title insurance provides coverage against various issues such as fraud, forgery, undisclosed heirs, errors in public records, and any other title defects that might jeopardize the owner’s legal claim to the property. It typically lasts as long as the policyholder or their heirs have an interest in the property.
  2. Lender’s Title Insurance: Often required in real estate transactions involving mortgages, this policy protects the lender’s interest in the property. It safeguards the lender against losses due to defects in the title that existed before the mortgage. It’s important to note that a lender’s policy only covers the mortgage loan amount. Its coverage decreases as the mortgage is paid off and eventually disappears when the loan is fully paid.

Each type of title insurance policy has its own terms, conditions, and exclusions, and buyers and lenders must understand the specific coverage provided by their policy.

What is title fraud?

Title fraud, a form of real estate fraud, is an illegal act where a fraudster uses false identification or forged documents to transfer the title of a property without the legitimate owner’s consent. This type of fraud can lead to significant financial losses for homeowners and lenders. There are two primary ways in which title fraud can occur:

  1. Forged Documents for Property Transfer: In this scenario, the fraudster forges the property owner’s signature on legal documents to transfer the property title into their name or a third party’s name. Once the title is transferred, they can sell the property or secure a mortgage against it, absconding with the funds and leaving the legitimate owner with the mortgage debt.
  2. Identity Theft: Here, the fraudster steals the property owner’s identity and uses it to impersonate them in legal transactions. They might refinance the property or take out new mortgages against it, pocketing the money and leaving the unsuspecting owner responsible for the debts.

Title fraud is particularly concerning because it can go unnoticed until the legitimate property owner faces financial demands, such as mortgage payments that they did not initiate or until they attempt to sell or refinance their property and discover that the title is no longer in their name.

To protect against title fraud, property owners are advised to regularly check their property records, be vigilant about protecting their personal information, and consider purchasing title insurance, which can offer financial protection and legal support in cases of title fraud.

How much does title insurance cost in Ontario?

The cost of title insurance in Ontario varies and is influenced by factors such as the property’s value, the insurance provider, the type of property and whether the policy is for a residential or commercial property. Here’s a general cost range:

  1. Residential Properties: For most residential properties, title insurance fees can range from approximately CAD $300 to $500. The value can be higher for expensive properties. The variation in cost depends mainly on the purchase price and the insurance coverage amount.
  2. Commercial Properties: The title insurance cost for commercial properties is typically higher due to the increased complexity and higher risks involved. These costs can vary widely and often start in the lower thousands of dollars, scaling up based on the property value and complexity of the transaction.

It is important for individuals planning to purchase a property in Ontario to remember that title insurance is a one-time payment that offers coverage for the entire duration of their ownership of the property. In order to obtain the most precise estimate for a particular property, it is recommended to request quotes from various title insurance companies or seek advice from a real estate lawyer who can offer customized guidance.

What are the benefits of title insurance?

Title insurance offers significant benefits in real estate transactions, providing property owners and lenders with critical protection and peace of mind. Here are the key advantages:

  1. Protection Against Title Defects: Title insurance covers potential defects in the title that were not discovered or were overlooked during the initial title search. This includes issues like forgery, fraud, clerical errors in public records, and undisclosed heirs.
  2. Coverage for Legal Expenses: In case of a legal challenge to the property’s title, title insurance can cover the costs associated with legal defense, including attorney fees and court costs.
  3. One-time Payment for Long-term Coverage: Unlike other forms of insurance that require ongoing premiums, title insurance is typically a one-time payment made at the time of purchasing the property. This one-time payment provides coverage for as long as the policyholder owns the property.
  4. Compensation for Financial Loss: If a title defect leads to a financial loss – for instance, if a previously unknown lien must be paid off – title insurance can provide compensation up to the policy limit.
  5. Peace of Mind: Property owners can have peace of mind knowing that potential title issues are covered. This assurance is particularly valuable in real estate, where investments are substantial.

Title insurance assures property owners, lenders, and legal protection for property rights. Understanding the details of title insurance is essential for anyone involved in the real estate market in Ontario to ensure a secure and legally compliant property transaction. Title insurance remains a vital tool for safeguarding property investments and legal rights.

Insight Law Professional Corporation is dedicated to helping clients. If you need assistance from a Toronto Real Estate Lawyer, contact us today and see how we can help you.

The information provided above is of a general nature and should not be considered legal advice. Every transaction or circumstance is unique, and obtaining specific legal advice is necessary to address your particular requirements. Therefore, if you have any legal questions, it is recommended that you consult with a lawyer.