The word “title” is a legal term that means you have legal ownership of property. You obtain title to property when the owner signs the deed (transfer document) over to you. Title is then registered in the government’s land registration system.
Title insurance is an insurance policy that protects residential or commercial property owners and their lenders against losses related to the property’s title or ownership.
Normally, when you purchase a home, your lawyer would investigate title to see if there are any liens against the property. Your lawyer’s opinion however, is only going to be as good as his/her research. So, if your lawyer makes an error, Title Insurance will cover you.
It also covers you in the event errors or mis-information was provided by the previous property owner.
As an example, let’s say that there are two neighbors, and one has a garage that is actually 2 feet on the other person’s property. Both parties are aware of it, but because they have a great relationship, there is no problem.
Now – the person with the garage sells their house to you, and you move in. For one reason or another you don’t get along with the neighbor… maybe you had a big loud house-warming party and keep him up all night. Suddenly, he is angry that your garage is 2 feet on his property, and you have a problem.
In this case, since you didn’t know about the problem before hand, the Title Insurance company will either defend your right to leave your garage there, if it has been there for a long, long time… OR they will compensate the neighbor for the 2 feet of property they have lost by paying them to buy that strip of land… OR in the worse case scenario, they will actually pay to have the garage moved so that it no longer encroaches on your neighbor’s property.
Title Insurance can also protect you from fraud. There are instances where the owner has been living in their home for 3 or 4 years, and they found out that someone has gone down to the registry office and fraudulently transferred the deed to their home over to themselves. Then, this person fraudulently discharges your mortgage on the home, so now it appears that not only do they own your home, but the house has no mortgage!
They then go to another bank and say “Here is a copy of my deed, I own this home, I have no mortgage, and I would like to borrow some money to do some renovations”. So…they pocket several hundreds of thousands of dollars and probably go off on an extended vacation, while you…the rightful owner, are at home and are getting notices of non-payment from that new lender and they are threatening power of sale!
Without title insurance, you would be stuck paying a ton of legal bills (about $20-30,000 minimum) to sort this mess out, but when you have the Title Insurance, you will be protected from something like this.
Title Insurance can also eliminate many costs. For instance, generally the Law Society of Upper Canada requires that you pay a $50 fee in case your lawyer makes an error. However, title Insurance covers this, so you do not have to pay this fee. Also, Enbridge Gas, and Toronto Hydro usually both require that you pay a $50 fee to conduct a search to get utility clearances for your new home….but with Title Insurance this is covered and those costs are eliminated.
Title Insurance also eliminates the cost of a survey. A survey is a piece of paper, which shows the dimensions of your lot, and the dimensions of your house, and where the house sits on the lot. Often, the seller will provide a survey, but, if one doesn’t exist or it’s out of date, the banks will accept Title insurance instead of you paying for a new up-to-date survey which could cost over $1,200.
Finally, the cost of Title Insurance is about $450 to $600 for a house, and $250 to $350 for a condo. It is a one-time payment and must be purchased on the day you get your keys. It is a very minimal expense when you add up all of the costs you save and the peace of mind you get when you buy it.
To arrange it, you just need to ask your lawyer when you’re first speaking with him or her.
The Financial Services Commission Of Ontario has created a brochure outlining Title Insurance in detail. You can download it here.
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