Do You Need Title Insurance

Introduction:

Securing a clear and issue-free title is crucial when purchasing a property in Ontario. Title insurance, while not mandatory, is a highly recommended safeguard. It offers comprehensive coverage, providing a sense of security and peace of mind during the home-buying process. The absence of title insurance could potentially lead to significant financial and legal responsibilities. For instance, victims of title fraud may lose the ability to mortgage their home, access the equity, or sell the property until they re-establish their title rights through the courts. These are not just hypothetical scenarios but real-life situations that property buyers and mortgage lenders in Ontario need to be aware of. The potential consequences of not having title insurance are not to be taken lightly, as they can result in substantial financial and legal burdens.

What is Title Insurance:

Title insurance is a crucial shield for both property buyers and mortgage lenders. In the event of certain types of loss, this contract provides indemnity for up to the policy's face amount. This insurance allows for coverage of specific issues, removing the need for immediate problem resolution. As a result, legal costs for the buyer or mortgagor may be reduced, as the title insurer may waive specific searches. Title insurance policies offer a wide range of coverage based on the policy's specific jurisdiction, insurers, and contractual terms, providing financial relief in potential legal situations. In other words, title insurance is not just a safety net but a wise financial decision that can save you from legal and financial headaches. The benefits of title insurance are clear: it can significantly reduce your financial and legal risks, provide peace of mind and security in your property purchase, and potentially save you from costly legal battles and economic losses.

Residential Properties

The following types of properties can be insured:

·       Houses.

·       Condominiums.

·       Cottages.

·       Vacant land.

·       Cooperatives.

·       Leased or investment properties.

·       Rural properties.

Commercial Properties

Commercial title insurance is available for non-residential properties such as:

·       Office buildings.

·       Industrial buildings.

·       Shopping centres.

·       Apartment buildings.

·       Rental units.

·       Warehouses.

·       Vacant commercial land.

·       Leased commercial properties.

Title insurance provides various benefits for homeowners

1.       Extensive coverage: 

Title insurance provides ironclad protection for a wide range of potential issues related to property ownership, offering more comprehensive coverage than a lawyer's opinion.

2.       Unparalleled peace of mind: 

Home purchasing is a significant investment and can be stressful, especially for first-time buyers. Title insurance provides unwavering assurance that you are shielded against any potential title fraud or defects.

3.       One-time cost, lifelong protection: 

Title insurance is a remarkably affordable investment that offers enduring benefits. Once purchased, it can effortlessly be transferred to your children, a former spouse, or another beneficiary.

4.       Rock-solid legal protection: 

If you ever need to defend your home's title legally, your title insurance provider will steadfastly cover your legal expenses.

Homeowners have three options to ensure a good title

1.       Rely on a lawyer’s opinion on title.

2.       Traditional title insurance or

3.       TitlePLUS

Pros and Cons

1.   Rely on a lawyer’s opinion:

When a buyer seeks a lawyer's opinion on the title rather than investing in title insurance, they waive protection against potential errors and omissions. In this scenario, the only recourse to them would be holding the lawyer accountable. Nevertheless, establishing the lawyer's liability for negligence can be challenging, requiring evidence that the loss falls within the lawyer's scope of responsibility.

LSO Rules of Professional Conduct

As legal professionals, we must thoroughly explore all available options for safeguarding property ownership for our clients, as outlined in Rule 3.2-0.4 of the Rules of Professional Conduct. It is important to note that while title insurance is not mandatory and should not be the sole means of protecting our clients' interests, it is valuable and offers significant benefits. According to Rule 3.2-9.4, we are responsible for educating our clients that title insurance cannot replace the need for our expertise in real estate transactions.

Additionally, under Rules 3.2-9.5 and 3.2-9.6, we must disclose to our clients that we do not receive compensation from a title company for recommending a specific insurer. It is crucial to be transparent about the fact that some title companies may offer counsel fees to lawyers for endorsing their services, and any such fee must be fully disclosed and requires written consent from the client.

2.   Traditional Title Insurance

In general, an owner’s insurance policy covers the following:

a)       Title to the estate or interest insured (e.g. fee simple estate in the subject

property) being held (or vested) other than as shown in the policy

b)       Title defects, charge, lien, or encumbrance on the title

a)       Unmarketability of title that an up-to-date survey would have revealed

b)       Lack of a right of access to and from the land

Title insurers assess risk before covering property and exclude undisclosed risks. They don't cover potential risks that public records won't reveal.

Now, Ontario insurers are offering broader coverage for homeowners and lenders to protect against off-title risks, including:

a)       Work order

b)       Zoning

c)       Miscellaneous survey-related issues

Residential policies may provide insurance coverage for risks unknown to the buyer or lawyer before closing.

a)       Zoning

b)       Building and use restrictions

c)       Right of occupancy restrictions

d)       Unrecorded construction liens

Against Errors Made by Other Parties

Title insurance offers robust protection against errors made by other parties, such as oversights in municipality searches, which are not covered by the lawyer's errors and omissions insurance. For instance, if a seller forges a document or someone steals the seller's identity, these are risks that are beyond the lawyer's scope but can generally be covered by title insurance. If such losses occur, the title insurance company may cover them and seek recovery through subrogation – the right to legally pursue a third party that caused an insurance loss to the insured.

Gap Coverage

Gap Coverage is built into many insurance policies. It provides coverage for the insured owner or lender if there is a time gap between the completion of the transaction and the registration of title documents. A scenario like this occurs when parties are prepared to close a transaction but cannot register title documents (primarily because land registration systems are closed or unavailable). The gap coverage allows the parties to treat the transaction as closed.

Coverage Against Fraudulent Impersonation

Fraud coverage includes unenforceable mortgage security because of impersonation and such coverage persists when lawyers meet their clients solely through face-to-face video conferences. Mortgage lenders have expressed concern about the enforceability of their loans when the borrower is an imposter.

Commercial Properties have more Exceptions

Commercial properties have more exceptions not covered by the standard owner's policy. Owners must negotiate with insurers for additional coverage to endorse the policy.

Exceptions such as:

• Zoning

• Building and use restrictions

• Unrecorded construction liens

• Taxes or special assessments not shown as existing liens

• Items created, permitted, assumed, or agreed to by the insured

• Items known to the insured but not shown in the public record

• Rights to subdivide

• Expropriation rights (unless revealed by registered title)

• Events occurring after the policy date

• Gifts

• The claims of those in possession are not shown in public records

• Survey-related items (encroachments, overlaps, boundary disputes, unregistered easements, and shortage in area)

• Mineral rights

• Reservations in patent (Crown grant in Ontario)

• Aboriginal rights

• Environmental issues and

• Current mortgages

Lenders Standard Policies

For lenders, standard policies have fewer exclusions and usually include the following:

a)       Adverse possession

b)       Unrecorded construction liens

c)       Survey matters

d)       Special assessment

CRA’s Super-Priority Liens

Understanding the necessity of a lender-specific title insurance policy to protect against the CRA's super-priority liens is crucial. These liens are a claim on a debtor's assets and hold precedence over any other interests, such as a mortgage. They apply to the money businesses owe the CRA for GST/HST and payroll taxes. Until the remittance occurs, the money is held in a 'deemed trust' with the CRA as the beneficiary. This understanding is crucial in ensuring financial security and property rights.

Title Insurance contains many exceptions

Title policies are designed to address various exceptions, such as standard-form exclusions, property-specific exceptions, or the printed terms of the policy. However, numerous endorsements are available to address any policy restrictions, especially for commercial properties. These policies may vary depending on whether they are insurance policies for owners or lenders or combined title insurance/legal service coverage policies that provide coverage for both owners and lenders. It's important to note that the contractual terms of the policy determine the value of the title insurance.

3.   TitlePLUS

TitlePLUS is a form of title insurance that offers comprehensive coverage for title, regulatory compliance, and legal services. This thorough insurance provides protection in the event of any errors or omissions made by the lawyer during a real estate transaction. It's important to note that not all title insurance policies include legal service coverage, so it's crucial to verify this before making a decision. However, one downside to TitlePLUS is that the policy can be more complex.

Overall Drawback of Title Insurance

Title insurance does not cover the following:

a)       Known title defects at the time of purchase.

b)       Environmental issues, such as soil contamination.

c)       Indigenous land claims.

d)       Issues are only discovered when a new survey or inspection is performed.

e)       Any additions or changes to the property that you made.

f)        Anything that doesn’t exist in the public record.

Title insurance offers numerous benefits and some potential drawbacks. While it does not resolve legal issues, it does compensate the owner or mortgagee for actual financial losses resulting from the problem. Additionally, it's important to note that the language of a title insurance policy may not always provide the expected coverage. It's important to carefully review the terms when purchasing title insurance to ensure you are fully informed and protected.

Who needs title insurance 

Title insurance is optional but offers crucial financial protection for every homeowner, which is why most homeowners invest in a policy.

Typically, title insurance is acquired at closing to ensure smooth property possession without any unexpected issues. However, it's also possible to purchase title insurance after obtaining the property, although the coverage may differ.

If you need financing, most lenders require borrowers to obtain lender coverage at the borrower’s expense. Although not mandatory for cash purchasers, obtaining an owner's policy for closing is highly recommended. If you're renting your home, title insurance is not necessary. However, you might want to consider renter’s insurance for added security and peace of mind.

Conclusion

Remember that while title insurance may not be mandatory, it offers priceless peace of mind. Covering both you and your lender, this invaluable protection ranges from $300 to $1,500 for residential properties based on your purchase or mortgage amount. It's a lifetime investment for homeowners, offering assurance even after completing the purchase process.