Title insurance is an insurance policy that provides an indemnity against loss or damage for many covered title risks relating to real property, including coverage in the event someone else claims an ownership interest in the insured property or in the event that the priority and enforceability of a lender’s mortgage on title is challenged.
Title insurance provides coverage against title defects in existence at the time of closing, but which are not known to the insured at that time. It also provides coverage against losses resulting from many forms of title fraud.
Title insurance is widely used due to its comprehensive coverage and to save costs and time on real estate closings. Those who can benefit from title insurance are home purchasers, existing home owners, residential and commercial lenders, and commercial property buyers. Title insurance is available for both residential and commercial properties and must meet the underwriting criteria of the title insurance company. Policies can be obtained for just the lender, or both the purchaser and the lender.
Title Insurance is available all across Canada, depending on the company you are dealing with. Title insurance policies are obtained by the lawyer/notary acting for the home owner. Generally, in cases where the lender has this as part of the condition for mortgage financing, the lawyer/notary will have this as part of the instructions received from the lender. However, a client certainly has the option of purchasing Title Insurance without the condition from the lender. The lawyer/notary completes the due diligence searches required to obtain a policy and contacts the title insurer to arrange for the policy.
Title insurance is available for a one time premium. The premium is based upon the purchase price (for an owner policy) and the registered mortgage amount (for a lender policy). For owners, the policy coverage lasts for as long as the owner retains an ownership interest in the property and for lenders for as long as the insured mortgage is outstanding. In certain circumstances, owner policy coverage continues to apply even after the original insured no longer has an interest, including situations where there is a transfer of title in favou-r of spouse or child who receives title for nominal consideration. For lender policies coverage continues in favour of assignees of the insured mortgage.
Title insurance provides coverage for title risks existing as of the policy date, but are unknown to the insured at that time. Residential policies have some post policy date coverage such as for post policy forgery of an instrument, whereby someone claims to have an ownership interest in the property. The policy date is the registration date of the deed (owner policy) and the registration date of the mortgage (lender policy.) The following is a list of items that title insurance can cover . For Homeowners
a. Liens or encumbrances on title
b. Tax arrears
c. Work orders
d. Other parties owning an interest in a title
e. Many forms of title fraud
f. Encroachments onto an adjoining property, other than fences and boundary walls
g. Lack of a legal right of pedestrian and vehicular access to and from the Land
h. Violations of municipal zoning byâÂÂlaws
i. Un-marketability of the title to the property
j. Setback violations
k. Legal fees associated with a covered title risk as per the duty to defend contained within the policy
l. Types of residential properties that may be insured include: condominiums,
cooperatives, cottages, leased land and vacant land
2. For Lenders
a. The invalidity or un-enforceability of the insured mortgage upon the title
b. The priority of any lien or encumbrance over the insured mortgage
c. Unmarketability of the title
d. Lack of a legal right of pedestrian and vehicular access to and from the Land
e. Legal fees associated with a covered title risk as per the duty to defend contained
within the policy
Title insurance provides protection against loss or damage incurred by owners and lenders in many title fraud situations. Title fraud is something that mortgage Experts should also be aware of. Title fraud involves illegally using a property’s title to obtain mortgage funds. The fraud can be committed through a number of methods including a fraudulent transfer of ownership with forged documents, or an impersonation of the owner to obtain financing.
For residential policies, homeowners are protected for losses arising from fraud, forgery, duress, incapacity or impersonation, and lenders are protected against losses arising from forgery after the date of policy of any assignment, release, discharge (partial or full), postponement or modification of the insured mortgage.
Additionally, the coverage provision in the owner policy with respect to someone else owning an interest in title may apply in circumstance where an innocent purchaser purchases a property that was sold fraudulently. For lenders, the provision with respect to the invalidity of the mortgage upon title may also apply. As a mortgage Expert it is your responsibility to ensure your client is aware of Title Insurance and what it can provide to protect them even if the lender does not require it.
Gurmit is an author, writer, insurance and mortgage expert. He frequently writes on various topics of interest to his readers. Gurmit Singh is a licensed mortgage expert with Dominion Lending Centres Mortgage Villa.