What is Title Insurance?

Title insurance is a contract under which a title insurer indemnifies a property owner, lender or borrower against actual loss or damage sustained from covered title defects, fraud and forgery. It is not a guarantee of title but rather compensates an insured if title is not as set out in the policy.

As an example, if a title insurance policy insures a lender as having a first mortgage and it is subsequently discovered that there was a prior interest in existence as of the policy date, the insurer would compensate the lender for any loss it suffers as a result of the loss of priority. Title insurance would also pay legal fees and costs associated with defending the insured’s interest.

WHY IS TITLE INSURANCE PURCHASED?

Residential

In Canada, title insurance is often purchased on residential properties for the following reasons:

Survey Coverage
Title insurance is acceptable to lenders in lieu of their survey / real property report requirements. It is generally less expensive than a new survey, and can be obtained more quickly.

Gap Coverage
Title insurance allows transactions to close before documents are fully registered at the Land Title Office. By insuring against loss from other interests that may be registered against title before full registration occurs, title insurance provides smooth closings even for last minute transactions.

Known Title Defects
Certain defects such as encroachments shown on surveys or prior undischarged mortgages registered against title may be covered by title insurance. These are underwritten on a case-by-case basis. If it is determined that title insurance is available to cover loss from the defect, the transaction can close smoothly and on time.

Commercial

For commercial transactions, title insurance provides a much different approach to managing the risks to that of a lawyer’s opinion. For a one-time premium, the insured lender or owner has a direct contract of insurance with an insurer rather than having to look to the lawyer’s E & O insurance for compensation in the event of a loss or an error. In addition, title insurance is able to cover matters over which a lawyer cannot give an absolute opinion including certain known defects.

In Canada commercial title insurance is often used in multi-property, multi-jurisdiction and known defect transactions. Within these transactions, title insurance can be crafted to provide protection against loss from survey issues, zoning and use issues, and work orders along with many others issues.

HOW COMPREHENSIVE IS THE COVERAGE?

The Owner’s Policy insures against actual loss resulting from:

others claiming prior interests in title
violation of restrictions
fraud, forgery, incapacity, duress
fraud or forgery after the policy date
condominium and builders liens
liens for unpaid taxes
survey defects
lack of marketability
forced removal of existing structures
work orders and deficiency notices
encroachments

The Loan Policy insures against actual loss resulting from:

invalidity, unenforceability or lack of priority of the mortgage or any assignment thereof
unmarketability of title
lack of legal access
work orders and deficiency notices
liens for unpaid taxes
post policy construction without permits
survey defects
violation of restrictions both before and after the policy date
lack of priority of future advances
claims of priority of builders liens
violation of usury laws
inability to use the existing structure for single family residential purposes
post policy forgery of discharges, assignments or releases of the mortgage
violation of subdivision control laws
lack or inadequacy of independent legal advice

WHAT TYPE OF PROPERTIES CAN BE COVERED?

Tile insurance is offered on all types of properties including single family residences, apartment buildings, mixed-use properties, agricultural properties, vacant land, warehouses, railways, office buildings, entertainment complexes, retail outlets, distribution centres and hotels. In fact, title insurance is even more important for commercial real estate transactions where typically the risks are greater and loan amounts larger.

WHAT ARE THE BENEFITS TO A PROPERTY OWNER AND LENDER?

Title insurance:

Eliminates the need for an up-to-date survey and many title searches
Offers broader coverage than a lawyer’s opinion
Reduces funding delays
Provides gap coverage: allowing for instant funding
Includes coverage against defects in title and outstanding work orders
Protects against fraud or forgery
Facilitates sale of mortgages in the secondary market
Provides gap coverage for multi-jurisdictional registrations that can help avoid escrowed/staggered funding (a substantial benefit for large commercial transactions occurring across the country)
Simplifies the process, reducing time per file and saving the client money

WHEN IS TITLE INSURANCE ORDERED?

Title insurance for a Lender is ordered at the time the lender issues a loan commitment. Until recently, owners could only order a policy at the time that they acquired title to real property. Now, many title insurers will issue an ‘existing owner’ policy to owners who have already acquired an interest in land. This is typically done at the time the property is refinanced.

The primary benefit of the “existing owner” policy is that it can provide the owner with coverage for losses resulting from future frauds or forgeries affecting the owner’s interest in the land.

HOW MUCH DOES TITLE INSURANCE COST?

Prices vary by insurer and by province however coverage for both an owner and lender can generally be obtained for a one-time premium of approximately $250.00. Additional premiums may apply to properties valued in excess of $500,000.00.

HOW LONG DOES THE COVERAGE LAST?

For owners, coverage lasts for as long as the owner retains an interest in the property. Coverage may also be transferable to beneficiaries who acquire an interest by way of trust or by bequest under a will.

Coverage for lenders lasts for as long as the mortgage debt remains. It is fully transferable if the mortgage is sold or assigned to a third party lender or to a mortgage default insurer.