When you are buying a house, at some point your lawyer will have a conversation with you about whether you want to take out a title insurance policy. Unless you have recently purchased a house, you may not be familiar with title insurance and whether you should obtain it. While your lawyer will discuss the options with you, the below information will also help you to make an informed choice.
What is title insurance?
Title insurance is an insurance policy that protects your ownership to your property. If an issue arises, your title insurer will protect you from financial losses related to covered risks, as well as associated legal fees. In most cases, you will obtain both an owner’s policy and a lender’s policy so that both you and your lender are protected from any title problems. While title insurance is not mandatory in Ontario, your lender will likely require that you have either a title insurance policy or a solicitor’s opinion on title.
Title insurance is available for a one-time premium that insures your ownership interest in the property for as long as you or your heirs own the property. The amount of insurance is usually the purchase price of the property, but this will increase as the value of the property increases up to a maximum of 200%.
What is covered?
To protect your ownership of your property, title insurance coverage typically includes issues such as unpaid utilities or property taxes from prior owners, someone else claiming an interest in your property, encroachments onto or from adjoining properties, existing liens again the title, lack of legal access to the property, violations in municipal regulations, title fraud, and deficiencies on title. For a risk to be covered, other than title fraud, it generally needs to have existed prior to the policy date.
Unfortunately, title insurance will not tell you whether the property complies with municipal setbacks or whether any renovations were completed in accordance with municipal building/zoning regulations. Furthermore, title insurance also excludes from coverage issues involving wandering fences, improperly installed wells, environmental concerns, tenancy issues, water potability, structural issues, or problems you were aware of prior to closing (among other exclusions). If you have specific concerns relating to these issues, you should speak with your lawyer about additional due diligence.
These examples of coverage are not exhaustive, and you should always review your title insurance policy to confirm the extent of coverage.
What is the alternative?
The alternative to title insurance is a solicitor’s opinion on title. This option requires a number of costly “off-title” searches including, but not limited to, building and zoning compliance (to confirm the property is properly zoned and proper permits and inspections were obtained), property taxes, and water/sewer (to confirm there are no account arrears). In addition to these costly searches, you will also require an up-to-date survey for the property. The cost of a survey typically starts at $1,500. and increases depending on the size and complexity of the property involved. The searches and survey can take weeks/months to finalize and usually cost a couple thousand dollars.
Which option is better?
In most residential purchases, title insurance is the preferred choice as it is a cost-effective alternative to ordering off-title searches and obtaining a survey. The cost of title insurance is dependent on your purchase price. For example, if you are buying a $500,000 home, you will likely spend $400 to $500 on a title insurance policy.
The cost of the searches, additional legal fees, and time required to receive search responses when completing an opinion on title are usually enough for clients to opt for title insurance. The added protection against title fraud also makes title insurance an attractive option. For the most part, title insurance covers you for issues that would have come up if you had performed the off-title searches.
One downside to title insurance is that since the off-title searches are not performed, you do not know whether issues exist and they cannot be fixed prior to closing; you simply have coverage for financial implications if a covered risk rears its head.
Your lawyer will be able to help you determine which option is right for you depending on your specific circumstances.
This blog post was written by Colleen Rhodes, a past member of the Real Estate team.