By: Kara Kuryllowicz
John ended up in a legal wrangle with a contractor he’d never met because the man hadn’t been paid for the $50,000 kitchen renovation on the home that John just purchased. Jane is tangling with her neighbour because a new survey shows her garage encroaches on the property next door. Susan can’t figure out why the bank is upset that she’s missed her last four mortgage payments because she no longer has a mortgage on her paid-in-full home. Bob is reluctantly negotiating payment terms on the previous owner’s unpaid municipal fees (such as property tax, water and sewage). Chrissie is deciding whether to tear down the fabulous, but non-compliant deck that was built long before she bought the house. Brad owns his home but the Smiths say they just bought it and want him out.
Unfortunately, these things can and do happen, fortunately, title insurance moves the risk associated with title from the homebuyer, the lending institution or the lawyer, to the title insurer. A title or deed to a property is your proof of ownership after the purchase. Before your lawyer registers you as the owner in the land titles system, the lawyer has to ensure your title or deed is free of encumbrances such as construction liens and certificates of pending litigation. A good, just or clear title allows you to obtain financing against your home or sell it.
Like so many real estate lawyers, sole practitioner Tom Lorenz, who works in the Greater Toronto Area, highly recommends title insurance and in fact. Lorne Shuman, director, of business development, First Canadian Title based in Oakville, Ont., which has offices across Canada says many lawyers feel so strongly about title insurance that they’ll walk away if you decline it.
So far, no province has deemed title insurance mandatory, as is the case with mortgage loan insurance, however Lorenz also notes that certain financial institutions will work only with their preferred title insurance companies, so make sure your lender will “approve” your title insurer before making the commitment.
Title insurance, which protects what is likely the homeowner’s biggest investment, typically costs the homeowner a one-time fee of about $350 on homes below $500,000, although that base fee increases incrementally on more expensive homes. While most buyers commit to title insurance when they purchase a home, homeowners can also get it years later.
“If you discover that you don’t have it, you can purchase it at any time, so get it now,” Lorenz advises.
Both Shuman and Lorenz note that the $350 fee is actually a money-saving strategy, as it allows lawyers to skip some of the searches required to ensure you have good title to your property. For example, the homeowner could save the $65 “transaction levy” charged by the law society, the lawyer may be able to avoid the building and zoning search, typically about $150, while a survey usually runs from about $600 to $1,000.
Title insurance, which is available in Canada from the Chicago Title Insurance Company, First Canadian Title, Stewart Title, Title Plus and others, covers unpredictable or undetectable issues such as:
- The unmarketability of the land (for example, the property can’t be sold until issues such as those mentioned in the first paragraph are resolved to make it marketable)
- Lack of a right of access (title insurance ensures the insured homeowner will not be denied a legal right of access to the property)
- Someone else has an interest in the title (for example, a former spouse, sibling, parent, co-owning friend, heir) “A simple error in the public record can give someone other than the homeowner an interest in the title,” says Robert Ip, Vice-President, Chicago Title Insurance Company based in Mississauga, Ont., which operates nationally and offers its policies throughout Canada.
- A document is not properly signed, sealed, delivered or registered
- Past and future forgery, fraud, duress, incompetence or impersonation
- Liens arising from builders/contractors, mortgages, taxes, utilities, judgments or condominium charges
- Rights of possession arising from leases, options, family law or homestead rights
- Easements over the land (for example, Bell can access their Bell cables via that land without actually owning it)
- Enforced removal of existing structures because they encroach on adjoining land or easements, or violate municipal by-laws
- Restrictions limiting the use of the land
- The house cannot be used as a single-family residence because it violates a restriction or zoning by-law (for example, if zoned commercially, it can be used as a shop or office with an apartment but not as a single-family dwelling)
Title insurance policies do provide the same basic coverages, but since the laws regulating title registration, fraud prevention, and charges that can form a lien against land do vary from province to province, there may be some differences.
Homeowners and their lawyers must carefully read the policy, including the fine print, to fully understand exactly what is covered and not covered by the policy. For example, TitlePlus provides “legal services” coverage which protects you against any mistake your lawyer might make in addition to any title deficiencies.
Title insurance remains your choice – are you making the right one?