What is title insurance and do you need it?

When buying a new home, one of the matters you’re likely to come across is title insurance, which provides comprehensive coverage for title-related risks such as zoning issues, claims of mental incapacity, lack of up-to-date survey and the legal services provided by your lawyer.

In short, title insurance:

  • Insures against such defects in title, which may occur from conflicting ownership claims, liens, undischarged mortgages and consents
  • Covers compliance and access issues such as work orders, permit violations, fences, boundaries, tenancies and rights of way certain easements
  • Is supposed to be in force so long as the purchaser or his heirs own the property
  • Will outlive the certification of your lawyer, whose insurance ends if he or she dies or stops their practice

Lawyer meeting

What if something is wrong and a prospective purchaser will not accept a new title insurance policy at no cost? The insurer will pay out in accordance with the policy, or will, if possible, repair the defect. Title insurance protects from vendors that won’t re-adjust or misrepresent things such as the real estate taxes paid. In addition, lawyers’ insurance is time of incident related, which in simple English means that if your lawyer dies, retires or ends their practice and you make a claim after that, you are not covered.

Title insurance saves you money. Disbursements, money paid to third parties for items such as building compliance letters, subdivision compliance letters and deed registration, are lower. We estimate $200 to $300 on a deal after the cost of the policy.

Almost all of Ontario is now on an electronic registry system. Title insurance has become the norm and many of the transactions are done by computer communications. Make sure the lawyer you select has taken the title insurance courses, has gone to the seminars on Terranet, the electronic registry system, and can properly advise you. The Law Society passed a rule that every lawyer on a residential real estate deal must advise the client of title insurance, the different companies and how it works. Remember, a lawyer survives by repeat business and referrals, and a lawyer’s mandate from the Law Society is that the client’s best interests must come first.

Insurance

We have all read and heard about mortgage and title fraud, where unscrupulous people put fake mortgages on properties or sell houses they do not own. Title insurance also indemnifies you against these occurrences.

To summarise, title insurance does four things better than lawyers’ insurance through Law Pro (the Law Society’s insurance arm):

  1. Gives better coverage as to the quality of your ownership than a lawyer’s insurance
  2. Lasts forever when lawyers don’t
  3. Saves $300 to $400 in disbursements
  4. Protects from mortgage and title fraud

Every lawyer has an obligation to make you aware of your title insurance options, so you can choose which way you want to go. Think through your options carefully and choose wisely.

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