Title Insurance FAQ

 

Q. Title insurance is growing in popularity in Canada. But what is      it exactly? Should I get it? Do I need it?

Q. Won't a search of title keep problems from arising?

Q. Is Title Insurance just like any other insurance?

Q. What information do I need to provide to get a policy?

Q. Who is protected with Title Insurance?

Q. Are there different kinds of policies?

Q. I'm refinancing, why do I need title insurance?

Q. I am an existing home owner without a policy, can I still
    
benefit from title insurance?

Q. If the value of my home increases over time, will my policy
     still cover the full value of my home?

Q. When is the policy issued?

Q. How does Real Estate fraud occur?

Q. How long is the title insurance coverage and what are the
     costs?

Q. How are premiums for Title Insurance determined?

Q. What other fees are involved?

 

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Q. Title insurance is growing in popularity in Canada. But what is
      it exactly? Should I get it? Do I need it?

A. Title insurance is a contract of insurance between the insured and the title insurance company that provides the purchaser with comprehensive no-fault protection against title risks inherent in real estate transactions, including:

          ■ Defects in the title to the property
          ■ Unmarketability of title
          Encumbrances and their priority
          ■ Survey errors
          ■ Adverse claims to property
          ■ Fraud and forgery
          ■ Invalid or unenforceability of insured mortgage on title
          ■ Authenticity of registered documents on title
          ■ Forced removal of structures on the insured property
         ■ Known risks which can be added to coverage to facilitate the               transaction
          ■ Other matters specified in the policy

In addition to policy coverage, the insured also receives:

       indemnity for actual loss or damage for the amount of the              policy
         ■ payment of legal fees and costs to defend title
         ■ a “no-fault” method to resolve title problems
 

Q. Won't a search of title keep problems from arising?

A. Even the most careful search of the public records will not find every title problem. Because some problems are hidden, your title may appear to be perfect, but in fact there may be issues (ex. fraud) that can be extremely expensive to rectify and can only be done at the cost of the home owner.

Q. Is Title Insurance just like any other insurance?

A. Title Insurance is unique in that it insures against loss from matters that happened in the past, whereas other forms of insurance insure against loss from events that may happen in the future. For example, if an insured suffers loss because it is determined after closing that a portion of the house encroaches onto an easement, the insured would be covered for that loss even though it took place in the past.

Q. What information do I need to provide to get a policy?

A. To purchase an existing home owner's policy, you will need to provide either a Municipal Property Assessment Corporation (MPAC) statement, or the latest copy of your municipal property tax bill. The purpose of these documents is to establish a current and reliable estimate of the value of the property being insured.

Q. Who is protected with Title Insurance?

A. Under a Title Insurance policy it is the home owner who has a direct claim against the insurance company if a specified title risk causes a loss, regardless of the source of that loss.

Q. Are there different kinds of policies?

A. Yes. Owner's policies are issued to real estate owners. Purchaser's policies are issued to purchasers of real estate under contract. Mortgage policies are issued to mortgage companies. In addition there are several other special forms of policies. There is a type of policy to meet the requirements of almost any form of real estate transaction.

Q. I'm refinancing, why do I need Title Insurance?

A. When you refinance you are obtaining a new loan, even if you stay with your original lender. Your lender will require lender's Title Insurance to protect their investment in the property. You will not need to purchase a new owner's title policy; the one you bought at closing is good for as long as you and your heirs have an interest in the property.

Even if you recently purchased or refinanced your home, there are some problems that could arise with the title. For instance, you might have incurred a mechanics lien from a contractor who claims he/she has not been paid. Or you might have a judgment placed on your house due to unpaid taxes, homeowner dues, or child support for instance. The lender needs reassurance that the title to the property they are financing is clear.

Q. I am an existing home owner without a policy, can I still benefit from Title Insurance?

A. Yes, Title Insurance is now available to existing home owners as well as those who are in the process of buying a home. Home owners who did not obtain a title insurance policy when they bought their home can benefit from the protection Title Insurance provides. Existing Home Owner Policies are available and provides those who already own their home with the protection of Title Insurance. It can easily be ordered through a lawyer during a refinance transaction or at any time during the course of home ownership.

Q. If the value of my home increases over time, will my policy
     still cover the full value of my home?

A. Yes, Title Insurance policies cover up to 200% of the value of your home when policy was purchased. For example, if you purchase an existing home owners policy and your home is worth $400,000 at the time the policy was purchased, you will be insured up to $800,000.

Q. When is my policy issued?

A. A purchaser's policy is usually issued after the contract has been executed by both parties or after the signed contract has been recorded, while an owner's policy is usually issued after the deed to the buyer is 'delivered' and recorded. The mortgage policy of Title Insurance is usually issued after the mortgage or deed of trust has been properly executed and recorded.

An owner's policy protects only the owner while a mortgage policy protects only the holder of the mortgage on the property. Separate policies are required to protect both interests. Special rates are available when both owners and mortgage policies are purchased at the same time.

Q. How does Real Estate fraud occur?

A. Real estate fraud takes several forms, but a common denominator is that fraudsters are sophisticated and armed with the appropriate documentation and necessary knowledge of the real estate process to enable them to perpetrate these major crimes. It is estimated that real estate fraud amounts to $1.5 billion a year across Canada.

A typical example of real estate fraud occurs as follows:

     1. A fraud artist obtains title to a property via a fraudulent transfer           document (a deed).

     2. The fraud artist goes to the bank and obtains a mortgage that is            then registered against the property.

      3. When the fraud artist does not make any mortgage payments, the           lender will serve notice that it intends to sell the property, and the          scheme is revealed to the legitimate owner when they receive            notice that the lender is trying to sell their property.

The above example is a fraudulent transfer and mortgage, but other types of fraudulent transactions also occur, such as Spousal Impersonation fraud and fraud by Breach of Undertaking. Thieves often target properties that are mortgage free and where owners have a good credit rating, this allows them to apply for a significant mortgage.

Q. How long is the Title Insurance coverage and what are the costs?

A. 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.

A residential Title Insurance policy in Canada for a typical home of less than $500,000 costs approx $350 including taxes (see chart below for exact figures). However, a Title Insurance policy often reduces the legal bill of the purchaser by more than the cost of the policy because several searches on the property are waived by the title insurer.

The premium for Title Insurance is paid once (at the time of purchase) and most Title Insurance policies have no deductible so it is truly a one-time fee. Generally speaking, the purchaser of the property pays for the Title Insurance, though there can be situations where the seller pays for it.
 

Q. How are premiums for Title Insurance determined?

A. Title Insurance premiums are determined by the amount and type of coverage provided. Unlike other insurance premiums, however, the Title Insurance premium is paid only once as the policy is effective for so long as title or "ownership" remains in the name of the insured, or his/her heirs or devises.

Typical costs for owner and lender coverage is set out below (including PST):
 

Value of Transaction

Premium

Less than $200,000

$300

$200,000.01 to $500,000

$350

Over $500,000

$350 plus $0.90 per $1,000
over $500,000

For Residential Condominiums, premiums are typically (including PST):
 

Value of Transaction

Premium

Less than $200,000

$160

$200,000.01 to $500,000

$190

Over $500,000

$190 plus $0.90 per $1,000
over $500,000

For an existing Homeowner policy (owner's coverage only; lender's coverage not required):
 

Value of Transaction

Premium

Less than $500,000

$240

Over $500,000

$240 plus $0.90 per $1,000
over $500,000

 

Q. What other fees are involved?

A. Most often, before an existing home owner Title Insurance policy can be purchased a lawyer will need to do a search for executions on the purchaser, as well as sub-searches on the property (for liens, judgments, etc.). These inexpensive searches cost approximately $11 per name for execution searches, and $18 per search on the sub-title.
 

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Damages

A cash compensation ordered by a court to offset losses or suffering caused by another's fault or negligence.

Deed

A written and signed document which sets out  recognitions of the parties towards a certain object. Under older common law, a deed had to be sealed; that is, accompanied not only by a signature but with an impression on wax onto the document. The word deed is also most commonly used in the context of real estate because these transactions must usually be signed and in writing.

Easement

The right to use the real property of another for a specific purpose. The easement is itself a real property interest, but legal title to the underlying land is retained by the original owner for all other purposes. Typical easements are for access to another property (often redundantly stated "access and egress," since entry and exit are over the same path), for utility or sewer lines both under and above ground, use of spring water, entry to make repairs on a fence or slide area, drive cattle across and other uses. Easements can be created by a deed to be recorded just like any real property interest, by continuous and open use by the non-owner against the rights of the property owner for a statutory number of years, typically five ("prescriptive easement"), or to do equity (fairness), including giving access to a "land-locked" piece of property (sometimes called an "easement of necessity").

Encumbrance

A general term for any claim or lien on a parcel of real property. These include: mortgages, deeds of trust, recorded abstracts of judgment, unpaid real property taxes, tax liens, mechanic's liens, easements and water or timber rights. While the owner has title, any encumbrance is usually on record and must be paid for at some point.


Lien

Any official claim or charge against property or funds for payment of a debt or an amount owed for services rendered. A lien is usually a formal document signed by the party to whom money is owed and sometimes by the debtor who agrees to the amount due. A lien carries with it the right to sell property, if necessary, to obtain the money. A mortgage or a deed of trust is a form of lien. There are numerous types of liens including: a mechanic's lien against the real property upon which a workman, contractor or supplier has provided work or materials, an attorney's lien for fees to be paid from funds recovered by his/her efforts, a medical lien for medical bills to be paid from funds recovered for an injury, a landlord's lien against a tenant's property for unpaid rent or damages, or a tax lien to enforce the government's claim of unpaid taxes.

Execution

The act of getting an officer of the court to take possession of the property of a losing party in a lawsuit (judgment debtor) on behalf of the winner (judgment creditor), sell it and use the proceeds to pay the judgment. The procedure is to take the judgment to the clerk of the court and have a writ of execution issued which is taken to the sheriff (or marshal, constable or other authorized official) with instructions on what property to execute upon. In the case of real property the official must first levy (place a lien on the title), and then execute upon it (seize it). However, the judgment debtor (loser in the lawsuit) may pay the judgment and costs before sale to redeem real estate.

Spousal Impersonation Fraud

This type of fraud can occur when one spouse mortgages a property for their own benefit using an accomplice to impersonate their spouse.

Fraud by Breach of Undertaking

Fraud, unfortunately, is not limited to rogue clients. Fraud can also occur by way of a lawyer’s/notary’s breach of an undertaking to pay off and obtain a discharge of a mortgage. That is, the vendor’s lawyer or notary absconds with the funds intended to be used to pay off the vendor’s pre-existing mortgage. Accordingly, while title to the property has been transferred into the name of the new purchaser, the property remains subject to the prior mortgage.
 

   

 

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