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Title insurance is growing in popularity in Canada. But what is
it exactly? Should you get it? Do you need it? Whether title
insurance is right for you is something you should discuss with
your lawyer, as it depends on the circumstances of your
transaction. This article will provide you with some background
information about title insurance to help you make an informed
decision.
Title to Property
Title is the legal term for ownership of property. Buyers want
"good and marketable" title to a property - good title means
title appropriate for the buyer's purposes; marketable title
means title the buyer can convey to someone else. Prior to
closing, public records are "searched" to determine the previous
ownership of the property, as well as prior dealings related to
it. The search might reveal, for example, existing mortgages,
liens for outstanding taxes, utility charges, etc., registered
against the property. At closing the buyer expects property that
is free of such claims, so normally they must be cleared up
before closing. For example, the seller's mortgage will be
discharged and outstanding monetary expenses (such as taxes and
utility charges) will be paid for (or adjusted for) at closing.
Sometimes problems (or defects) regarding title are not
discovered before closing, or are not remedied before closing.
Such defects can make the property less marketable when the
buyer subsequently sells and, depending on the nature of the
problem, can also cost money to remedy. For example, the survey
might have failed to show that a dock and boathouse built on a
river adjoining a vacation property was built without
permission. The buyer of the property could be out-of-pocket if
he is later forced to remove the dock and boathouse. Or, the
property might have been conveyed to a previous owner
fraudulently, in which case there is the risk that the real
owner may come forward at some point and demand their rights
with respect to the property.
Who is Protected With Title Insurance?
Title insurance policies can be issued in favour of a purchaser
(on new/resale homes, condos and vacation properties), a lender,
or both the purchaser and lender. Lenders will sometimes require
title insurance as a condition of making the loan. Title
insurance protects purchasers and/or lenders against loss or
damage sustained if a claim that is covered under the terms of
the policy is made.
Types of risks that are usually covered under a title insurance
policy include: survey irregularities; forced removal of
existing structures; claims due to fraud, forgery or duress;
unregistered easements and rights of-way; lack of pedestrian or
vehicular access to the property; work orders; zoning and set
back non-compliance or deficiencies; etc. For a risk to be
covered, generally it has to have existed as of the date of the
policy. As with any type of insurance policy, certain types of
risks might not be covered, for example, native land claims and
environmental hazards are normally excluded. Be sure to discuss
with your lawyer what risks are covered and what are excluded.
The insured purchaser is indemnified for actual loss of damage
sustained up to the amount of the policy, which is based on the
purchase price. As well, some policies have inflation coverage,
which means that if the fair market value of the property
increases, the policy amount will also increase (up to a set
maximum).
How Long is the Insurance Coverage?
In the case of title insurance covering the purchaser, title
insurance remains in effect as long as the insured purchaser has
title to the land. Some policies also protect those who received
title as a result of the purchaser's death, or certain family
members (e.g., a spouse or children) to whom the property may
have been transferred for a nominal consideration.
In the case of title insurance covering a lender, the policy
remains in effect as long as the mortgage remains on title. A
lender covered under a title insurance policy is insured in the
event the lender realizes on its security and suffers actual
loss or damage with respect to a risk covered under the policy.
Lenders are usually covered up to the principal amount of the
mortgage.
The premium for title insurance is paid once (at the time of
purchase). Generally speaking, in Canada the purchaser of the
property pays for the title insurance, though there can be
situations where the seller pays for it. Some policies
automatically cover both the purchaser and lender; others will
cover both for a small additional fee.
Protection and Peace of Mind
Title insurance can help ensure that a closing is not delayed
due to defects in title. And, if an issue relating to title
arises with respect to a risk covered under the policy, the
title insurance covers the legal fees and expenses associated
with defending the insured's title and pays in the event of
loss.
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