What is title insurance and why is it important?
There have been many reports in the media recently about title fraud, mainly where someone steals someone else’s title to the home by impersonating them, then sells or refinances the home, takes the money and runs away. One of the ways that homeowner can cover this risk is through title insurance.
Title insurance is different from home insurance and has entered the Ontario market in the late 1990’s and early 2000’s. Title insurance is optional, available for a one-time premium payable at the time the real estate transaction closes and protects property owners and their lenders against losses related to the property’s title or ownership.
Here are some of the risks that a title insurance policy covers:
• many forms of title fraud and other title matters: someone else owning an interest in the homeowners’ title through forgery or impersonation
• undetected or unknown defects that affect the homeowners’ registered interest in the title to the property
• liens against the title
• violations of municipal zoning by-laws by a previous owner
• real property tax arrears or public utility account arrears of the seller
• judgments, special assessments or charges by a condominium corporation
• unmarketability of the title due to title issues
• lack of access to and from the property
• invalidity or unenforceability of a mortgage
• and many more!
Title insurance policies do not cover against:
• risks that the homeowner created, allowed, or agreed to
• environmental matters (mold, asbestos, UFFI, termites, infestations, underground fuel storage tanks, abandoned oil wells, water leakage, and water quality or quantity)
• risks that are known to the insured, but not to the title insurance company on the policy date
• matters disclosed in a home inspection report obtained prior to the closing of a real estate transaction
• physical/structural conditions or defects
• functionality of septic systems
• for condominiums properties – matters disclosed in status certificates
Be aware, however, that the title insurance company will only pay homeowners for actual losses/ damages, which means that if a known defect has been uncovered but no loss or damage has been incurred, the homeowner will not collect any proceeds for damages from the title insurance company.
Secondly, title insurance insures the property for as long as the insured owns the property. This means that if the property is sold, the insurance policy becomes null and void, and the purchaser will need to obtain a new title insurance policy. However, for inherited properties or for property transfers between family members (with exceptions), the title insurance policy will carry over to the new owner.
Thirdly, title insurance is payable once, and the cost is based on the fair market value of the property at the time title insurance was obtained but the amount covered will increase as the value of the property increases up to a maximum of 200-400%, depending on the policy.
Keep in mind, however, that title insurance is not a home warranty and does not replace property inspection – it does not guarantee that the house and other improvements located on the property are well built, that there are no defects that will need repair such as leaking roof, foundation issues, that structures constructed on the property comply with prior or current building code requirements. Further, title insurance does not guarantee that the homeowner may change the use of the property or construct additions/improvements.
Wondering whether you have/need title insurance? Ask yourself this question if you fall among people who: purchase a property, refinance their home, inherit real estate property, or purchased their properties a while ago and the value of their homes increased more than double. Or if you have no idea if you have title insurance, give me a call and let’s chat!
If you have any questions about this topic, I would love to help!
PLEASE NOTE THAT THE CONTENT OF THIS BLOG IS MERELY FOR INFORMATION PURPOSES AND DOES NOT CONSTITUTE LEGAL ADVICE.
Raluca M. Soica, BBA, CPA, CMA, JD
Barrister & Solicitor
647.280.6497
raluca@rms-law.ca
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Raluca M. Soica 2/17/2023 |
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