In a previous blog post, I discussed the advantages of title insuring your home for Fraud Protection, whether at the time of purchase or by purchasing an existing owner policy.1 While fraud protection is extremely relevant right now (consider the current media coverage on title fraud in Ontario) 2, there are several other reasons why Title Insurance is the smart choice to protect your home. Here are five.
Title Insurance, an overview
As previously discussed 3 Title Insurance protects you against losses related to your property’s Title. Although not mandatory in Ontario, Title Insurance is extremely popular. In some cases, the insurer will pay the costs to correct title (think title fraud or a title defect which prevents your clear ownership) in other instances it will not “fix” the problem but will instead compensate you for the associated decrease in value due to the covered loss (for example, easements benefitting a neighbouring property that would have been disclosed by a new survey). The Title Insurer will choose whether to “fix” the problem or compensate you for financial loss on a case-by-case basis. Importantly, Title Insurance protects against past occurrences rather than future use of the property. If you have an intended future use in mind, it is important that you tell your lawyer so that the appropriate searches can be conducted. In some cases, you may be able to purchase a future use rider.
1. More protection than a Solicitor’s Opinion
Opting for Title Insurance instead of a Solicitor’s Opinion not only means fewer searches and post-closing protection for things like Title Fraud, but it also means avoiding litigation. A solicitor’s opinion speaks to the validity and marketability of the property’s title based on a title search. If an issue is discovered post-closing that affects the validity and marketability of the property, then you will have to sue the lawyer for negligence to recover any damages. It is also limited to the accuracy of the responses your Solicitor receives in their searches. If the response is inaccurate, the Solicitor cannot be held liable.
Further, a lawyer will only be found negligent if they are found to have breached the standard of a reasonably competent lawyer. The reasonably competent lawyer is allowed to make mistakes, so even if a problem exists, and the lawyer missed it, it does not automatically mean that the lawyer would be found negligent, and you are entitled to damages. Also keep in mind that litigation is a long and very expensive process which may not be worth it for every problem that may arise. Along with the above, there may also be issues collecting judgement, even if you are successful, if the lawyer is no longer insured and claims bankruptcy.
Title Insurance is paid out based on the insured risks within the terms of coverage in the policy you purchased. Unlike negligence, you do not have to prove that someone is at fault, you simply make a claim, and if it is a covered risk, Title Insurance will cover it.
2. Fewer searches, saving you money
A traditional Solicitor’s Opinion on title requires several searches called “Off-Title Searches”. Many Title Insurance policies will “insure over” certain off-title issues such as building permit compliance and conservation authority approvals, such that the off-title search is no longer required. Off-Title Searches can cost hundreds or sometimes even thousands of dollars, and can take a long time sometimes causing a delay in closing.
This “insuring over” function is one of the main allures of Title Insurance, other than fraud protection. It allows your Lawyer to forego many additional searches in favour of a more expedient, less expensive closing. Take for example, a common situation: the previous owners of the property significantly renovated the property and, unbeknownst to the current owners, had failed to obtain several building permits. The current owners later discover an open work order on the property that existed prior to their purchase. Had their lawyer done a building permit search, the work order would have been discovered. Fortunately, the current owners purchased Title Insurance when they purchased their home. The search was not required by the Title Insurance Company and was an “insured risk”. The homeowners submit a claim to their insurance company for any costs to close the work order, including the costs of any repairs.
Had the homeowners not purchased title insurance, the real estate lawyer would have conducted the search, there would have been an additional fee and the discovery may have delayed closing.
However, it is important to keep in mind that these off-title risks will only be covered if the homeowner was unaware of the defect at the time of closing. Had the homeowners been aware of the open work order prior to purchase, it would not be covered.
3. Gap coverage
The “Gap” refers to the time between closing and registration of the title transfer in the Land Registry Office. If the Title Insurance product you purchased includes a “Gap” coverage endorsement, this means you are covered if any liens are registered on title during this “Gap” period. This allows you to get the keys to your home on closing without having to wait for registration.
4. Legal coverage – Duty to defend
Where legal coverage has been purchased, Title Insurance will cover legal costs incurred if an issue arises for an “insured risk”. Take for example, a third-party claim against your title. It may be a valid claim such as a boundary error or a title mistake where an instrument was registered on the wrong title. It may also be an invalid claim, where there is clearly no valid issue involved, but an opportunistic neighbour is using the situation to their advantage. In either case the Title Insurer has a duty under the policy to defend your title (provided that it relates to a covered title risk). If you did not have title insurance, you would be responsible for all the legal expenses stemming from the claim.
When the title insurer defends the action, it will determine the best way to deal with the claim, which may involve settling the claim or retaining a lawyer to defend your interest.
5. Survey coverage
A survey is a scaled depiction of the property showing boundaries, easements, and locations of buildings and any encroachments (including those on the property; and encroachments going from the property to a neighbouring property) which is prepared by an accredited Ontario Land Surveyor who bases their opinion on physical measurements as well as title documents from the Land Registry Office.
A survey is the only way to confirm that the property you are buying matches the property you believe you are buying. It is also the only way to learn about encroachments.
Acquiring a survey can be expensive, costing anywhere from $1,500 to $6,000 depending on the size of the property and the type of survey required. 4
There are certain circumstances where a survey may be an important component of your transaction, which should not be skipped. Your lawyer can advise on a case-by-case basis. However, in many situations, Title Insurance is a suitable alternative to a costly survey. It’s important to note that Title Insurance is not a complete replacement for a survey. It will not tell you where your lot is, or whether there are any encroachments, but it does ensure that the Buyer legally obtains what it believes to be the property (or be compensated if not). If a defect is discovered later, which would have been revealed by a Survey on closing, it will be covered by the Title Insurance policy.
There are many reasons why you should invest in a Title Insurance policy when purchasing your home. For a relatively inexpensive on-time premium, you receive not only fraud protection, but also all the above, just to name a few perks.
While there are several other aspects of Title Insurance not commented on above, it is important to note that there are some risks that are specifically excluded from coverage. These will be discussed in the next blog post.
Are you purchasing a new property, interested in an existing owner policy for Title Insurance or just have a question about this article? Please reach out to the author, Laura McFalls—a lawyer in our real estate practice group at [email protected] if you have any questions.