For most Canadians, a home will be their highest-valued asset and largest expense. Closing costs are usually the biggest upfront cost for a house. Included in the closing costs is title insurance, which is an important insurance policy that protects your ownership of the house.
Just as you insure your home to protect both the physical and internal contents, it’s also important to insure your property’s title.
What Is Title Insurance?
A title is a document that shows who legally owns a property, so any issues with the property, such as liens or back taxes, are tied to the title. Title insurance is a policy that provides protection against third-party claims that don’t appear on the initial title search of a property and occur after a real estate deal is struck.
If you’re thinking of buying real estate in Canada, it’s important to understand that a title claim can happen at any time, no matter how many years you’ve owned a property. That’s because someone else may have ownership rights you’re unaware of when you buy it. Even the seller or an overlooked heir might not be aware of the title situation.
How Does It Work?
Before closing a mortgage, the lender will order a title search from a title company. It’s that company’s job to examine all public records related to the property and discover any issues. Issues that could affect the lender’s (or prospective buyer’s) rights to it, including:
A lien is a security interest that’s placed on a property by a contractor, tax authority, or lender who hasn’t received a payment they’re owed. If you’re not careful, this can force you to take responsibility for the previous owner’s debts.
An easement is a third party’s right to use your property, even if you’re the owner. For instance, if there are utility lines under your lawn, the utility company will have an easement that lets them access your property when they need to do work. This can cause problems for your own usage of the property.
“Financial” encumbrances include liens and easements, as well as zoning laws and restrictive covenants imposed by leaseholder rights and homeowners’ associations. Restrictive covenants are conditions that restrict, limit or prohibit the actions of someone that’s named in an enforceable agreement.
The title company is responsible for searching public records, including deeds, divorce decrees, court judgements, mortgages, tax records and child support orders. If their title search turns up any issues, they’ll try to resolve them. In some situations, your real estate agent may need to work with the seller’s agent and get them to resolve the issue. In others, the issue may be problematic enough to prevent the sale entirely.
What’s The Difference Between The Title and The Deed?
Although their terminology might seem similar, a title is actually different than a deed:
- A title is a term that indicates the current owner of the property
- A deed is a document that’s used to transfer a property’s title to another person
So, if you buy a piece of real estate in Canada, the property deed will transfer its title (or ownership) from the seller to you, the buyer.
Types Of Title Insurance
There are two main kinds of title insurance: lender’s and owner’s title insurance.
Lender’s title insurance is a type of insurance that protects lenders from potential loss due to issues with the transfer of property ownership. It’s a type of insurance policy that some lenders may require borrowers to purchase when trying to get a mortgage. Since lenders assume a large portion of the financial risk when providing a mortgage, they may require the borrower to purchase this policy. Essentially, this insurance protects them and provides the buyer with some assurance as well that the seller is legally able to transfer the title ownership.
Owner’s title insurance is usually purchased by the home seller and not the buyer. It is an optional form of insurance that is meant to protect both the seller and buyer from any title issues that may come up. Typically, this insurance can protect you against nasty surprises like years of back taxes being owed on the property or if someone tries to challenge your ownership of the property.
What Does Title Insurance Cover?
What is covered by this insurance depends on the title insurance policy you buy, but generally it protects you against any problems that come with the title for a property. These issues include:
- Unforeseen issues with the title that were not disclosed by previous homeowners, such as back taxes
- Survey and public record errors
- Liens against the property
- Encroachments on another property
- Not complying with zoning bylaws
- Problems with easements on the property
- Title risk errors made by your lawyer
- The time between when your home purchase is finalized and when the title is registered with the government
- Legal fees stemming from title issues
- Title fraud
What Does Title Insurance Not Cover?
If you own property, it’s also important to know that title insurance doesn’t protect you against every type of infringement that can affect your rights to it. Common examples:
- Infringements where you’re held at-fault, such as failing to pay your property taxes.
- When the federal government takes control of a private property so they can convert it for use by the general public, otherwise known as “eminent domain”.
Basically, title insurance only protects you against problems that may have affected your choice to buy the property (had you been aware of them at the time).
Where Can You Buy Title Insurance In Canada?
Normally, you’ll have to buy your mortgage lender’s title insurance policy when you agree to buy a real estate property. An owner’s policy is sometimes required when the deal is closed to ensure all parties are covered but this is often optional. As the owner, you can also buy protection at any time, even if you owned the property for several years.
Title insurance usually has a one-time fee of about $200 to $500. However, the price of your policy may vary based on multiple factors, like the property’s value, your insurance provider, and your province or territory of residence. Your credit score can also play a role, so be sure to check your credit score and ensure it’s up to standards before applying for title insurance.
According to the Royal Bank of Canada (RBC), the most popular and trusted title insurance companies in Canada are:
- Stewart Title Guaranty Company
- FCT Insurance Company Ltd.
- Chicago Title Insurance Company
- Lawyers’ Professional Indemnity Company (TitlePLUS)
- Travelers Guarantee Company of Canada
How To Make A Title Insurance Claim
If you end up in a situation that requires your insurance, you can file a claim by:
Step 1. Verifying Your Policy’s Terms
Before you file your title insurance claim, make sure to double-check your policy to confirm that the issue will be covered. Your insurance provider will only reimburse you if the incident and claim are provable.
Step 2. Making A Written Claim
While a phone call may suffice, it’s better to send your insurer an email or letter so you can explain the title issue properly. Don’t forget to include your contact information, policy number, and any relevant documents.
Step 3. Filing Your Claim Immediately
It’s also best to file your title insurance claim as soon as possible to avoid any more headaches. Read your policy or talk to your insurance provider to find out how quickly you can submit a title insurance claim.
Step 4. Keep A Copy Of Your Claim In Your Records
Once they receive your claim, the insurance company will notify you and evaluate your case for coverage. Afterward, it shouldn’t take too long to get a response concerning their decision.
Benefits Of Title Insurance
- Comprehensive coverage – Purchasing title insurance means that you have comprehensive coverage for issues against your home’s title. If there are surprise back taxes owed or a lien that you didn’t know about, for example, a title insurance policy prevents you from having to pay them off out of pocket.
- Peace of mind – Knowing you’re covered by these unexpected surprise expenses, it will give you peace of mind when buying your home. Title insurance can protect you from numerous situations including:
- Forged signatures on the deed that can cause issues with the transfer of property ownership.
- Expenses related to a previous owner’s heir trying to claim ownership of the property.
- One time cost – One of the greatest benefits of title insurance is that purchasing it is a one-time cost. You don’t need to worry about making monthly payments, so you don’t have to think about it once you’ve purchased it.
Learn how a home is divided in divorce.
How To Save On Title Insurance
Title insurance can be expensive, often upwards of $1,000, but it is still a wise investment. If you can find a way to save on insurance, all the better.
There are a few ways that you can save on insurance:
- If the title to a property was insured within the last few years, you can generally get a discount on title insurance since the previous title insurer should have researched the title up until title insurance was purchased the first time.
- You could get a discount on title insurance if the property was sold a few years before you bought it or if you bought it within the last few years.
- If you are refinancing your home, you should ask for a title insurance discount. Such a discount is known as a “bring-down rate” or “reissue rate”. The worst that the lender can say is no, so ask them for a discount and see what happens.
Is Title Insurance Mandatory In Canada?
|Province||Title Insurance Rules|
|Ontario||Title insurance is NOT mandatory in Ontario but real estate lawyers must advise their clients of the policy as an option to buy. Most mortgage lenders require clients to buy lender’s title insurance (which protects them).|
All Ontario insurance providers are licensed and overseen by the Financial Services Commission of Ontario (FSCO).
|Quebec||Although title insurance is NOT mandatory in Quebec either, most lenders require their clients to purchase lender’s title insurance. |
The Autorité des Marchés Financiers (AMF) regulates Quebec’s financial industry.
|British Columbia||Like Ontario and Quebec, most BC mortgage lenders tell clients to buy lender’s title insurance. However, real estate lawyers don’t have to advise clients on title insurance. |
The BC Financial Services Authority (BCFSA) manages the financial system of British Columbia.
|Alberta||While some mortgage lenders require you to buy title insurance, it’s NOT a mandatory purchase in Alberta. Like BC, lawyers aren’t required to advise clients about title insurance. |
The Alberta Superintendent of Insurance regulates the insurance industry.
Do You Need Title Insurance?
Besides protecting a buyer and seller against any potential title issues, title insurance is also a great option to protect against title fraud.
Title fraud is when someone poses as a homeowner when they do not, in fact, own the home. They can get a mortgage, sell the home, or assume the title of the home without the real homeowner’s consent.
You have to pay a few hundred dollars extra to get this protection, but it is well worth it. You, as the buyer, are protected against property risks, including title fraud, back taxes, problems with building permits, liens against the property that the previous homebuyer was responsible for, and encroachments on other properties, as long as you own the property.
Title Insurance FAQs
How do you buy title insurance?
Is title insurance mandatory and when do I have to purchase it?
What happens if I don’t get title insurance?
How much does title insurance normally cost?
When do you need to buy residential title insurance?
Title insurance helps to protect you against many issues related to your home’s property, including back taxes, liens, easements, and non-compliance with zoning bylaws. While title insurance isn’t mandatory by law, certain lenders may require lender’s title insurance before approving you for a mortgage. Given that a home is a high-value investment, it may be best to pay this form of insurance. That way, if there is a problem with your home’s title, your title insurance can cover the damage. Moreover, if you’re spending tens or hundreds of thousands of dollars for a home already, spending a little extra on title insurance can save you from a massive headache.