Minden Gross LLP - Title Insurance – What’s Covered? What’s Not Covered?

Articles Newsletters Tax Newsletters		Title Insurance - What's Covered? What's Not Covered? By: Monica E. Bianchini Minden Gross LLP, a member of MERITAS Law Firms Worldwide. ___________ Buying a home is such an important investment, you want assurances that your investment is protected and that title is yours “100%” (save of course for any new mortgage). In dealing with residential purchases, we recommend purchasing title insurance. To get the most value out of your title insurance policy, it is important to understand how title insurance works, and what risks title insurance does and does not cover. This is a brief overview. What is title insurance? Title insurance is an insurance policy that protects residential and commercial property owners and their lenders against any losses related to the property’s ownership and title. Like any insurance policy, it is a contract of insurance that comes with terms and conditions. It is not a requirement in Ontario. Generally, a title insurance policy will cover risks as of the policy date and includes limited risks or events that arise after the policy date (these are usually specifically included in the policy). While there are a number of title insurance companies and policies to choose from, generally, a title insurance policy provides protection from losses arising from: Unknown title defects. Coverage is provided for issues that do not allow you to have clear ownership of the property; Encroachment issues. For example, a structure or fence on your property needs to be removed because it is on your neighbour’s property; Existing liens against the property’s title. For example, the previous owner of the property had unpaid debts from utilities (save for final bills which are not covered by title insurance); Errors in surveys and public records. I know it’s hard to imagine but the government records can be incorrect; and Title fraud and forgery (after the policy date). Title fraud is a form of real estate fraud that usually involves a fraudster using stolen personal information or forged documents to transfer your home’s title to him/herself or a third party accomplice, without your knowledge. The fraudster then gets a mortgage on your home and disappears with the money. I note however, that compensation is available through the Government’s Land Titles Assurance Fund. The beauty of title insurance is that it covers matters that cannot be dealt with in a solicitor’s title opinion and includes the duty to defend your title – to deal with litigation related to fraud and other title matters. For example, if your neighbour (the nasty one to the left) builds a shed that encroaches onto your property after the policy date, the policy is effective as long as you or your spouse, your children, your heirs or your beneficiaries own the property. Many people (especially in the City of Toronto) purchase homes with the intention of renovating them into their dream home. Title insurance can help when the unexpected happens. For example, John and Mary, a couple expecting their first child, bought a house planning to add a nursery to their home. When the building inspector arrives for an on-site inspection, the inspector discovers an earlier renovation was not made to code, and as a result the whole home needs to be rewired. Mary and John obtained title insurance at the time of their purchase and as such can look to the insurer for compensation for the costs of bringing the electrical work up to code. As with any type of insurance, there are exclusions and limits to title insurance. Title insurance is an agreement to indemnify a particular owner of an identified property from the actual losses resulting from title risks covered by the policy up to the policy amount including, costs, legal fees, and expenses. It is not a guarantee of title nor is it a cure of title. Each title insurance policy will have exclusions, which should be reviewed and considered. Generally these exclusions include: Known title defects. If you are aware of any title defects before you purchase your property, these defects are not covered by title insurance. Although, there may be endorsements available for your lender; Environmental hazards. For example, soil contamination is not covered under title insurance; Native land claims (for commercial transactions only); Problems that would only be discovered by a new survey or inspection of your property. For example, the property is smaller than you originally thought. While title insurance can eliminate the need for an up-to-date survey, it is always advisable to obtain one; Zoning bylaw violations from changes, renovations or additions to your property or land that you are responsible for creating. Title insurance does not replace the need for due diligence nor will it “fix” your title issues, but it can provide additional assurances that a lawyer’s title opinion can not provide. We are often asked whether it is worth it to obtain title insurance on existing properties. Again, one of the most attractive features of title insurance is that it provides coverage for real estate fraud and the duty to defend an action arising from such fraud. If an innocent purchaser or mortgagee obtains an interest in your property after a fraud, it is protected. A true owner can lose his or her title or be subject to a mortgage under the Land Titles Act after a fraud. Many are of the opinion that if you remain in occupation of your home (with clearly identified ownership) the risk of fraud is minimal. If however, you are fortunate enough to escape the cold harsh Canadian winters for an extended period of time or if you rent a residential property to a third party, you may want to seriously consider purchasing a title insurance policy to avoid the added disadvantage that title to the property could be lost as a result of fraud. When occupancy is given up, the risk of fraud increases.