Importance of Title Insurance
The term ‘title’ refers to an individual’s legal ownership of a property. Title Insurance is simply an insurance policy that is meant to protect residential and/or commercial property owners against any losses related to the property’s title or ownership, including their lenders. While Title Insurance has not been deemed as a requirement in Ontario, individuals will seek to order Title Insurance when purchasing a home.
A Title Insurance policy may provide home buyers protection from losses such as:
- Title defects that are unknown and may prevent home buyers from having clear ownership of the property
- Any existing liens against the property’s title – whether the previous home owner had unpaid debts from utilities, mortgage, property taxes, etc.
- Any encroachment issues – a structure on the property that needs to be removed as it is approaching the neighbour’s property
- Title fraud – typically will involve a fraudster using personal information that has been stolen to transfer the title of the home to themselves without the home owner’s knowledge (note: not all policies cover this, please check with your lawyer when purchasing your home or lending funds)
Title Insurance policy is set out to protect home owners, for as long as they own the property. In addition, the policy will cover any losses occurred up to the maximum coverage stated in the policy.
The following are some of the possible exclusions from a Title Insurance policy:
- A home owner’s knowledge/awareness of title defects – were made clear prior to the purchase of the property
- Any environmental hazards – soil contamination around the property
- Any native land claims
- Any zoning bylaw violations from any changes, renovations or additions to the property or land that the home owner is responsible for creating
It is important to note that Title Insurance does not provide home owners compensation for non-title related matters. Title Insurance is neither a home warranty or a home insurance policy. Title Insurance will not provide compensation to home owners in the following instances:
- Any damages that have occurred from flooding, fire or sewer backup
- General wear and tear of the home
- Theft related issues
- Any other losses or damages that are non-title related matters
Why obtain Title Insurance?
There are a variety of situations in which a lien may arise on your property due to the seller. The seller may have had renovations done prior to selling the home and did not pay the contractor or the supplier of materials. The seller may have not paid their final hydro or utility bills. Water and hydro companies have priority power when it comes to unpaid bills. They have rights to put on a lien on the property – it is not relevant who owes the money, as long as water or utilities were supplied to the property, the right to place a lien on the property exists.
Purchasing real estate is usually a large investment and having to commence legal action against a seller is usually the last thing on a purchaser’s mind. Whether the focus is on moving in, or renting the property out, title insurance helps prevent the stresses of losses by paying out the purchaser. Title insurance can then decide if they want to commence legal action against the seller, the purchaser, however, gets to focus on what matters most, their home.