Title Insurance – What is It?

Expect to be inundated with different types of insurance when you buy a home. The confusing myriad of options that you may be presented with include the following:

·       Home or Fire Insurance

·       Tenant Insurance.

·       Condo Insurance.

·       Mortgage Insurance.

·       Mortgage Life and Disability Insurance.

·       Exploding Bridge Insurance.

….okay, maybe not that last one.

All of these tend to blend together, and to be honest, insurance is boring.  Well, here is one more insurance type that you might be required to obtain as part of your purchase closing: Title Insurance.

Title Insurance is the ugly stepbrother of insurance options.  It’s usually picked up at the lawyer’s office (who are usually terrible insurance salespeople), and it is confusing enough that most people don’t really understand what they have bought.  Purchasers are often overwhelmed by the information that they have received, and the cost of Title Insurance relative to the cost of the whole transaction is pretty small.  They often just want the lawyer to tell them what to do, and dang it, I have this picky little problem that I like my clients to make informed decisions about these kinds of options.

Title Insurance covers specific losses or damages resulting from certain defects to the title or the ownership of property.  The defects will often exist prior to you taking ownership of the property. One of the additional benefits is that the title insurer will cover the legal costs to deal with an issue that is insured as well. 

You have to refer to a policy for specifics, but some examples include:

·       You find out that your garage is on your neighbour’s property, and they demand that it be moved or removed.  (Fences, on the other hand, are usually excluded)

·       Certain building permits are not obtained that should have been, and the municipality requires compliance.

·       Someone fraudulently transfers title out of your name.

This article does a better job of detailing some of the specifics: http://www.rbcroyalbank.com/mortgages/title_insurance.html

The most common practical reasons that title insurance is purchased:

1.     You have to get it – Some lenders require in every transaction that a policy of title insurance is obtained.  If your lawyer does not buy it for you, then no money.

2.     To replace a Real Property Report (“RPR”) – Lawyers are often required to obtain a surveyors’ certificate or RPR as part of their reporting to the lender, and this document may need to be issued within a certain number of years.  Title insurance will often eliminate this requirement.

3.     To get money faster – Lawyers can use ‘gap coverage’ in the title insurance policy to request funds be delivered to their office and used prior to the registration of the title in their purchaser’s name.  The gap being referred to is the registration time – the gap between when the documents are submitted for registration, and when they are processed. We want money faster sometimes so that we avoid interest charges if funds are delayed.

Added to this confusion is that we can purchase two ‘types’ of policies for a real estate transaction: lender only coverage, and lender and homeowner coverage. You can obtain an insurance policy that only insures the lender – this is usually the only type of insurance that is required for lending transactions.  For a small add-on fee, the home owner can be added to the insurance policy. 

Our office tends to purchase from Chicago Title Insurance of Canada (www.ctic.ca) when we have the option.  Their website has a decent information sheet for those looking to purchase insurance on what it is all about.

Still confused?  That’s okay.  This is just so that you have the basics when you talk to your lawyer.  Feel free to ask more questions as needed about this insurance product.