If you’ve purchased a home in the last 15 years, you may have heard the term “Title Insurance”. Legal professionals in recent years are offering and obtaining these policies on a client’s behalf as an extra layer of protection for homeowners as part of the property purchasing process. In this article, we will discuss Title Insurance, what it means and why purchasers may want to consider obtaining these policies.
What is Title Insurance? Title Insurance is unlike home insurance which insures damage/liability to the physical structures on your home/property. Title Insurance is specific to the “title” of the property and other potential unknowns regarding the property that may not come to your attention until a later date and cause a loss in property value. These unknowns may include the following:
- unregistered title documents such as easements that would allow a third-party access over your property for their own purposes
- property access issues
- unpaid utility accounts from previous owners
- lot line issues such as structures/pools/vegetation crossing the property line onto an adjoining property
- title fraud where fraudsters steal your identity to transfer the ownership of the property or obtain fraudulent mortgages and stick the actual homeowner with the bill.
This is not an exhaustive list of the potential issues Title Insurance may cover. We do strongly suggest that interested persons do their own reading and due diligence for potential coverages.
Why Title Insurance policies are obtained? Most mortgage lenders will require legal professionals to obtain a Title Insurance policy on the lender’s behalf to protect their financial interest in the property. From the lending perspective, they want to ensure that should the property lose value due to unforeseen “defects” or super priority liens arise that they have an avenue to recoup their losses.
Same principles apply to homeowners – the draw to Title Insurance is to provide an avenue to recoup losses a homeowner may incur from unknowns. An example that comes to mind is a story regarding a pool built over a property lot line. No one knew the pool was over the lot line until a survey was prepared by a qualified surveyor, at which time they discovered the pool encroached onto the neighbouring lot. The pool needed to be removed at significant expense and resulted in losses being incurred. This is an example of when Title Insurance may step in and pay for the remediation and losses. Another unfortunately all to common example is title fraud. More and more we are hearing of fraudulent identification or mortgage schemes to defraud homeowners. Legal professionals do their best to sniff out fraud, but some unfortunately slip through the cracks. Title Insurance may be able to cover the losses incurred as a result of title fraud.
When do you get a Title Insurance policy? Title Insurance policies are ordered and made effective for the “completion date” of the purchase/mortgage. As a purchaser a copy of the policy would be provided to you at your signing appointment or with your purchase reporting packages. From our office, a copy of the policy is provided on the completion date with the reporting package. It is important to keep this policy handy for review and reference should a loss be incurred. For persons who already own the property and wish to obtain a Title Insurance policy now, this is possible and can be obtained any time but it is important to note it will not cover losses that the owner knows or ought to know from owning the property for some time. For commercial properties, unfortunately “existing owner” policy cannot be obtained after the transfer has occurred – a policy may only be obtained prior to transfer of ownership. Regarding commercial properties, there may be some exceptions through the title insurer for existing owner policies, but we are not currently aware of these exceptions.
Can private mortgage lender’s obtain a Title Insurance policy? The answer is yes with a few caveats. It should be noted that not all Title Insurance companies have the same allowable coverages. There may be caps for the allowable dollar value coverage, or some private lenders who cannot obtain coverage because the deemed risk is too high. There is often additional screening and questions for scenarios which are not run of the mill to help mitigate the fraud risks.
When do you make a Title Insurance claim? Title Insurance claims must happen after the loss is incurred. Its important to note that policy holders cannot pre-emptively make claims for losses they see coming. The loss needs to have actually happened and must be proved to the insurance adjustors when filling the claim. Each Title Insurance company has different requirements for filing claims, so policy holders should review their policies to see the steps involved in making a claim.
Is this information current? We should note here that this is not exhaustive account of Title Insurance and there are many different title insurance companies who offer this service. Our office interacts with two of the primary title insurance companies in Canada and we keep up to date with their policy and practice changes but these changes can happen rapidly so it is always best to reach out to us before acting on any of this information. This article is up to date as at the date of publish with any additional information on Title Insurance being published in a new posting.
Author: Tracy Lerfold, Designated Paralegal to Jennette Vopicka and Danielle (Dani) Brito
This information is general in nature only. You should consult a lawyer before acting on any of this information. This information should not be considered as legal advice. To learn more about your legal needs, please contact our office at (778) 940-3768 or any of our lawyers practicing in the area of real estate law at the following:
Danielle (Dani) Brito: [email protected]
Jennette Vopicka: [email protected]