Title insurance is a cost-effective protection that shields homebuyers from many of the major risks that can affect the ownership and/or future marketability of title to a property.
A title insurance policy protects residential or commercial property owners and their lenders against losses related to the property's title or ownership: it protects against title defects or unknown claims on the property that can affect ownership rights. Title insurance moves the risk associated with title from the buyer, homeowner or lender, to the title insurer.
Title insurance is typically purchased by homebuyers for a one-time fee at the time of closing; however it can also be purchased by existing homeowners (existing homeowner policies differ from those obtained at closing). Residential title insurance coverage usually lasts as long as the insured owns the property and coverage often extends to heirs, spouses (in the case of divorce), or to children (when property is transferred at a nominal cost).
REALTORS® should be able to answer clients’ basic questions on the topic. However, it is unwise and dangerous for REALTORS® to give advice to consumers about title insurance products. REALTORS® are reminded that section 8 of the REBBA Code of Ethics imposes an obligation on registrants to advise clients and customers to seek services from others if registrants do not have the requisite knowledge, skill, judgment, competence or legal authority to provide such services.
- 1 The Role of Lawyers
- 2 Title Insurance in Ontario
- 3 Coverages and Exclusions
- 4 Use and Benefits
- 5 Related OREA Resources
- 6 External Resources
- 7 Related OREApedia Topics
Origins of Title Insurance in OntarioAlthough title insurance has been in existence in the U.S. for more than a century, it has only been available in Ontario since the 1990s. Previously, Ontario buyers and their lenders relied solely on their lawyers’ opinions as to whether they had “good and marketable title.”
The Law Society of Upper Canada amended its Rules of Professional Conduct to require lawyers to “assess all reasonable options to assure title when advising a client about a real estate conveyance.” Lawyers are now required to be:
- knowledgeable about title insurance
- able to discuss the advantages, conditions, and limitations of the various options and coverages generally available, and
- cognizant of when title insurance may be an appropriate option.
According to First Canadian Title, a title insurer operating in Ontario, it has become common practice for many lawyers across the country to title insure every real estate transaction they work on.
Title Insurance in Ontario
Who’s WhoIn Ontario, the Financial Services Commission of Ontario (FSCO) regulates companies that issue title insurance. Insurance companies that do business in more than one province are also regulated federally by the Office of the Superintendent of Financial Institutions (OSFI).
According to the Title Insurance Report, November 2008 (see External Resources) issued by the Financial Services Commission of Ontario -
“The Ontario title insurance market is comprised of seven title insurance companies. Two of the companies, FCT Insurance Company Ltd. and First American Title Insurance Company, are owned by the same U.S. parent company. FCT Insurance Company offers residential policies and First American Title Insurance offers commercial policies.”
The licensed title insurers in Ontario as of November 2008 were:
- Chicago Title Insurance Company
- FCT Insurance Company Ltd. (also known as First Canadian Title)
- First American Title Insurance
- Lawyers’ Professional Indemnity Company (also known as LAWPRO)
- Lawyers Title Insurance Corporation
- Stewart Title Guarantee Company
- Travelers Guarantee Company of Canada
Types of PoliciesTitle insurers offer similar types of policies. The differences lie in coverages, terms, exclusions, combinations, etc. There are title insurance policies for both residential properties and commercial properties.
According to FSCO, types of residential title insurance include:
- Policies for new homeowners
- Policies for existing homeowners
- Policies for residential mortgage lenders
- Policies for individuals purchasing commercial properties
- Policies for commercial mortgage lenders
Fraud and forgery
Zoning bylaws and contraventions
Coverages and Exclusions
CoveragesWithin the general types of insurance, title insurers offer a range of policies. Most policies include a general statement of coverage; specific types of title risks covered; exclusions and exceptions from coverage; and policy conditions/stipulations. In addition, they contain specific terms set out in attached schedules.
There are a variety of coverages and extended coverages, so direct comparison of the different products is difficult. Buyers should, together with their lawyer, consult the policy for the details of the terms and conditions. The real estate lawyer can help the buyer sort out the various protections offered by different policies in order to get an idea of which risks are covered and which are excluded.
REALTORS® are reminded that section 8 of the REBBA Code of Ethics imposes an obligation on registrants to advise clients and customers to seek services from others if registrants do not have the requisite knowledge, skill, judgment, competence or legal authority to provide such services.
According to Understanding Title Insurance and Title Insurance Report, November 2008 both published by FSCO (see External Resources), title insurance policies may provide protection from losses such as:
- "Unknown title defects (title issues that prevent you from having clear ownership of the property);
- Existing liens against the property’s title (e.g. the previous owner had unpaid debts from utilities, mortgages, property taxes or condominium charges secured against the property);
- Encroachment issues (e.g. a structure on your property needs to be removed because it is on your neighbour’s property);
- Title fraud;
- Errors in surveys and public records;
- Other title-related issues that can affect your ability to sell, mortgage, or lease your property in the future.
- A lawyer’s errors and omissions relating to an opinion on the property’s title; and
- Any other matters that can affect an individual’s ownership or right to use the property.
ExclusionsAs with any type of insurance policy, certain exclusions will apply.
According to FSCO’s Understanding Title Insurance (see External Resources) “[Consumers] also need to be aware of possible exclusions, which may include:
- Known title defects (that were revealed to you before you purchased your property);
- Environmental hazards (e.g. soil contamination);
- Native land claims;
- Problems that would only be discovered by a new survey or inspection of your property (e.g., the property is smaller than originally thought);
- Matters that are not listed in public records (e.g. unrecorded liens and encroachments); and
- Zoning bylaw violations from changes, renovations or additions to your property or land that you are responsible for creating. ”
Insurers can deny claims where the loss is created, suffered, or assumed (agreed to) by the insured. If the buyers acknowledge a defect in the APS that subsequently leads to a loss, it can be denied from coverage. It could depend on the circumstances and what information was disclosed to the title insurance company by the buyer (through the buyer’s lawyer) when the insurance was being arranged. It will also depend on the language of the particular company's policy regarding coverage and exclusions. Problems that the buyer failed to disclose to the lawyer will also not be covered. It is vital that buyers tell their lawyer of any problems that their REALTOR® advised them of or that came to light when visiting the property.
Title insurance is not a home warranty or property insurance. Therefore, if the problem is not a legal problem or a title problem, it is likely not covered. Title insurance will not protect buyers from non-title issues such as damages caused by flooding, fire or sewer backup; general wear and tear such as a leaky roof or an old furnace; or theft.
Use and Benefits
Streamline the TransactionTitle insurance can help a deal close on time – even if there are issues that would normally delay or even prevent a deal from closing.
Title insurance is an effective way of dealing with title issues that may be time-consuming or difficult to remedy. It can streamline the process of title searches, and may eliminate the need to obtain zoning clearances, up-to-date surveys or certificates from various authorities. Title insurance is relatively inexpensive, averaging a few hundred dollars, and may be offset by not having to do title searches.
Surveys and Encroachment IssuesDue to the amount of work and detail involved, surveys and surveyor’s real property reports generally cost significantly more than title insurance.
Title insurance may protect against any title-related issues that would have been identified by an up-to-date survey. The lender may accept title insurance where an up-to-date survey is not available. This means that a transaction may be able to be closed without an up-to-date survey.
However, this is not always the case. Title insurance does not necessarily replace a survey or meet the need for a new surveyor’s real property report, for example, when a buyer intends to alter a property by building an addition, or where the exact dimensions of the property are important to the buyer. Buyers should have their lawyer explain whether a survey or title insurance (or both) is appropriate in their circumstances and what may be required by the lender. The buyer's lawyer can refer the issues to the title insurance company to determine coverage and solutions.
Certain types of title insurance coverage will also permit a transaction to close even with minor encroachments. The parties would consult with their lawyers to see whether the appropriate title insurance coverage could be obtained in order to complete the deal.
OREA Standard Form 100 - Agreement of Purchase and SaleThe first part of clause 10 – Title: of the OREA Standard Form 100 Agreement of Purchase and Sale provides that the buyer is receiving good title to the property, free from all registered restrictions, charges, liens and encumbrances, except as specifically set out in the APS and the four general exceptions.
The last part of clause 10 provides for objections to title made before and after the dates set out in clause 8, how they are to be dealt with, and the result.
From OREA Standard Form 100 – Agreement of Purchase and Sale
A relatively new part of clause 10 permits the seller to obtain title insurance for the benefit of the buyer and any mortgagee, in order to correct a problem or insure against a potential problem, to help close the transaction. This was further clarified in the 2010 version of OREA Standard Form 100 with the addition of the words “(Title Insurance)” in that part of clause 10.
After ClosingIf there is a problem with title that only becomes known after closing, the title insurer may rectify the problem or compensate the policyholder, provided the type of problem is covered by the title insurance policy.
The most common title insurance claims involve unpaid utility or tax bills from the previous owner. The second most frequent category of claims relates to building code issues. For example, a couple buys a house planning to add a new wing to their home. When the building inspector arrives for an inspection, he discovers that an earlier renovation was not done to code, and the whole home needs to be rewired. If the owners have a title insurance policy in place, the insurer could compensate the homeowners for the costs of bringing the electrical work up to code.
Title insurance can also protect homeowners if the house or a pool is not located on the property accurately and encroaches onto neighbouring land. A title insurer could resolve this problem by buying the piece of land that the house (or pool) actually sits on from the neighbour, and taking care of all the related legal work.
Condominium owners have also found title insurance protection useful. Take the example of a newly built condo unit purchase. The buyer of a particular unit finds that the unit purchased is a different unit from the one that he was expecting to buy. Unfortunately, the unit actually acquired is worth less. In this instance, the legal services coverage available through the TitlePLUS policy was called on, and the buyer was compensated for the difference in value between the units.
Additional examples of how title insurance can help solve title related problems at and after closing can be found in the January 2003 issue of the REALTOR Edge - Everything you need to know about Title Insurance.
Fraud ProtectionThere is no absolute way clients can protect themselves from title fraud, but there are some measures they can take to minimize the chances of becoming a victim of a fraudster. REALTORS® could suggest the following to their clients:
- watch vacant or rented properties carefully
- be vigilant and check your credit reports regularly: question any credit inquiries that you don’t recognize
- trust your instincts; take care against inadvertently being drawn into a crime.