What is a Title?
The word title has quite a few meanings (including honorifics like ‘His or Her Majesty’), but for our purposes, we’re looking at title as a legal term pertaining to property. Straight from Wikipedia: “In property law, a title is a bundle of rights in a piece of property in which a party may own either a legal interest or equitable interest” (Wiki). A title is legal document conferring, proving, and establishing ownership of property.
In real estate – and specifically as pertains to homes – you receive the title when a home owner signs the deed to the house over to you. This is one of the later stages of the home buying process (and it can be quite an exciting event), but it’s also one of the most important processes. Your title to the property is what makes a home your home (legally), and it is registered in the government of Ontario Land Registry.
What Is Title Insurance?
So that’s what a title is – where does title insurance come in? Speaking of Ontario specifically, title insurance is not outright required (not by the government, anyway). However, it may be the case that title insurance is very worthwhile – and it may be the case that non-governmental parties (like the mortgage lender) requires it. Let’s take a closer look.
Just like car insurance (which is mandatory) protects drivers from mishaps and problems related to the car, title insurance protects home owners from mishaps and problems related to a property title. Essentially, title insurance protects both the fact of your ownership, and it protects against losses stemming from title defects (which will be explained shortly).
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Types of Coverage
We’ll get into the specific things title insurance protects you from, but first, an overview of varieties of title insurance. There are owner’s policies and lender’s policies – the owner’s protects the home owner, naturally, and the lender’s protects the lender providing the mortgage, usually coverage for the total mortgage amount.
Next, there are both residential and commercial title insurance. Breaking that down further there are insurance policies for new homeowners (or individuals buying new commercial property), existing homeowners, and lenders in a residential/commercial mortgage.
What Does Title Insurance Insure Against?
First of all, title insurance protects you from title defect. A title defect is some issue with the title (or the accusation by an external party that such an issue exists) that throws your legal ownership into question. Title defects can include improper property lines, and other similar issues with the title itself.
Title insurance provides you with protection from title defects. The defects can vary in magnitude, but the potential of a major title defect could end up cost tens to hundreds of thousands of dollars. Title insurance covers your potential losses from a title defect. It’s worth noting that a thorough land surveying is one step to avoid any such title defect.
We’ve explained liens in greater detail elsewhere, but in short, a lien (let’s use a tax lien as an example) on a property means essentially that the government can claim the property from its current owner and sell it to cover unpaid taxes. Liens are placed on the property title when the owner owes a certain amount of money (usually a substantial amount) to another party.
If by some chance you’ve purchased a home with a lien on it, again, title insurance will protect you from the (potentially major) financial losses that would follow.
Title Fraud, Fraud, and Forgery
The most common form of fraud, as pertains to title insurance, is title fraud. Fraudsters make use of stolen (or forged) personal information and documentation, and use this to transfer the title to them. After this, they’ll apply for a mortgage, take the money, and run.
It’s to think that fraud is something that will never affect anyone in your life, but it does happen. Fraud and forgery can come into play with property titles, and they can manifest in other manners than title fraud, but once again, title insurance protects you.
Is Title Insurance Necessary?
The short answer is often yes – though, again, as it stands in Ontario, it’s ultimately up to you. But you often stand to lose much more by not getting title insurance than by getting it. You should consider the pros and cons before making a decision.
It’s also wise to discuss title insurance with your lawyer or notary, whose legal knowledge can help guide your decision. Your real estate agent (if you presently have one) is also good to talk to – this is someone familiar both with your specific situation, and the broader real estate market.
One way of looking at it is to compare the one time price of the title insurance (which is usually measured in the hundreds of dollars) with the price of the home (which is usually measured in the hundreds of thousands of dollars) – not to mention the potential losses stemming from fraud, defect, or other such problems.
Indeed, it is not uncommon for lenders (and even real estate lawyers) to require individuals to acquire title insurance before going through with a home sale.
How to Get Title Insurance
You will typically purchase title insurance when you buy your home, though you can acquire it later, too. The payment consists of one premium – in other words, no monthly instalments – and while the price can vary based on insurance provider, property value, and type of coverage, many homeowners can anticipate a price ranging from $250 to $500.
The coverage lasts for as long as you own the property (legally, the title to the property), and for the most part, this coverage will transfer to your heirs. Lawyers can purchase title insurance on your behalf, or you can employ an insurance broker. You can see a list of licenced insurance companies on the Financial Services Commission of Ontario website here.
The title to your home is what makes it legally yours. Title insurance protects you from the myriad ways in which that title can be disputed. This is not to say that everyone buying a home will face a title defect – far from it – but the peace of mind, the broadness of coverage, and the relatively small cost of title insurance almost always make it a wise choice.
As always, WRX Property Group is happy to look into any further questions you may have. You can contact us here.
Written by Will Kummer