Written by: Dina Nikseresht
Purchasing real estate is one of the most significant investments a person can make. During the purchase process, ensuring clear and marketable title is essential. Title insurance serves as a critical safeguard in real estate transactions, protecting buyers and lenders from potential title defects, ownership disputes, and financial losses. While it is not mandatory to obtain title insurance in Ontario, it is highly recommended.
What exactly is Title Insurance?
Title insurance is a policy that protects purchasers and mortgage lenders against financial loss due to issues affecting the ownership or title of a property. Title insurance is different form typical insurance in that it provides protection from past issues that may have existed even before taking ownership, provided that the homebuyer was not aware at the time of the purchase. Some of the protections title insurance offers include:
- Fraud and forgery – protects against losses due to a fraudulent transaction, such as purchasing a property from a fraudster.
- Title defects – covers issues like unknown liens, conflicting ownership claims or improper past transfers.
- Non-compliance with municipal by-laws – protects against risks such as unpermitted zoning violations.
- Undisclosed arrears – covers unpaid debts tied to the property, such as outstanding property taxes.
- Errors in public records – provides coverage for mistakes in land registry records.
There are two types of title insurance:
- Owner’s Title Insurance: protects the buyer’s ownership rights against title defects.
- Lender’s Title Insurance: protects the lender’s interest in the property and is typically required by mortgage lenders.
Intended Use and Multi-Unit Designation
It is essential to inform your real estate lawyer about your intended use of the property and whether the municipality designates it as a multi-unit dwelling. Title insurance does not guarantee coverage for future use, so if you plan to use the property in a specific way, your lawyer may need to conduct additional zoning and by-law searches to ensure compliance with municipal regulations.
Additionally, if the property is classified as a multi-unit dwelling, title insurance will only cover risks related to certain issues, such as open work permits, if:
- The property was correctly reported as a multi-unit when getting the title insurance policy; and
- The lawyer did the necessary background checks with the municipality prior to ordering the policy.
If these steps aren’t taken, title insurance may not cover problems related to zoning or legal use, which could lead to unexpected costs or legal issues later.
Title Insurance and Fraud
Title Fraud has become increasingly common. Title insurance companies are more frequently dealing with claims from homeowners who have had their property sold by a fraudster, or discovering that a fraudulent mortgage has been placed on their home without their knowledge. Title insurance covers losses that arise in these events.
Recently, Chicago Title Canada reported an incident where two fraudsters impersonated the property owners who were out of the country. Using fake IDs and fraudulent bank accounts under the original homeowner’s identity, they managed to sell the property for $2 million. As the homeowner and lender had title insurance, a total of $2,415,698 was paid out. Without title insurance, the homeowners would have faced significant financial and legal challenges.
Investing in title insurance ensures that your real estate transaction remains secure, reducing the likelihood of disputes and complications. In an era where property fraud is at an all-time high, title insurance is a valuable tool for homeowners, providing peace of mind and financial protection against unforeseen title-related risks.
