Bottom Line: When purchasing a property, title insurance provides you with coverage for issues relating to the marketability of your title as well as fraud related matters. In particular, it gives you coverage for any issues a survey would disclose (encroachments, setback violations), if there is no legal access to the property, and/or if there are any work orders, open building permits, building and zoning violations, provided you did not cause the issue and provided that you were not aware of it at closing when you purchased the title insurance policy. It also gives you coverage for any fraud, forgery, or false impersonation to the extent they affect the validity of your interest in title.
What is Title Insurance:
Title insurance is an insurance policy that insures homeowners against loss or damage that stems from title defects or other covered risks, such as survey issues, encroachments, title fraud, or the legal use of the property.
Do I need Title Insurance:
In Ontario, title insurance is not mandatory. If you do not obtain a title insurance policy through your lawyer, you can instead receive a Solicitor’s Opinion as to the title of your property. This will require your lawyer to do additional searches with respect to the title, municipal building and zoning searches, municipal agreement compliance searches, tax, water and utility searches, and a variety of other searches. In addition, a current building survey will be required. A Solicitor’s opinion will be limited by the accuracy of the records and responses received to the search requests and would not provide coverage for any fraud related issues. These searches will often end up being more costly than a title insurance premium, which you will pay at the time of closing. Title Insurance is not a recurring fee.
Benefits of Title Insurance:
There is a myriad of benefits to a title insurance policy. For example, with title insurance, if you learn of an issue with respect to the title to your property after closing, you can make a claim against your title insurance policy. Title insurance does not require the same volume of searches as a solicitor’s opinion would require, which usually makes it a more cost-effective option for purchasers. In addition, most, if not all, financial institutions and lenders require a title insurance policy as a requirement of a mortgage. In addition, one benefit of title insurance that cannot be obtained via a solicitor’s opinion is fraud protection coverage. This will provide the purchaser with protection for many forms of title fraud. In addition to fraud protection, title insurance provides you with coverage for issues relating to the marketability of your title, issues a survey would have disclose (encroachments, setback violations) had an up to date survey been available at the time of closing, if there is no legal access to the property, and/or if there are any work orders, open building permits, building and zoning violations, provided you did not cause the issue and provided that you were not aware of it when at closing when you purchased the title insurance policy.
Drawbacks of Title Insurance:
It is important to know that title insurance does have exclusions to the policy, which are items that will not be covered under the insurance policy. Title insurance will not cover, for example, any defects that you knew about at the time of closing, any physical defects or structural issues with the property, environmental contamination, water potability or quality, fire retrofit issues (e.g., sufficiency of smoke alarms or fire barriers), the cost of moving fences or boundary wills, any chattels that are included with the purchase, or the future use of the property, among others.
If you have questions about land transfer tax or if you would like us to assist you with your real estate transaction, please contact us.