Do You Need a Title Insurance in Canada?

Purchasing a home is one of the largest financial investments Canadians will make. To protect this investment, title insurance provides vital coverage against legal and financial risks associated with a property’s title. This guide will explore title insurance, why Canadian homeowners need it, and how to purchase the right policy.

What is Title Insurance?

“Title” refers to the legal ownership rights to a property. When you buy a home, the title is transferred from the seller to the buyer through a legal document called a deed, which grants you full ownership rights.

Title insurance is a policy that protects homebuyers and mortgage lenders against financial losses arising from undiscovered defects, liens, encumbrances, or other legal issues associated with the property’s title. It offers coverage if legal challenges or claims arise regarding the validity and ownership status of the title.

Title insurance protects against losses incurred by events such as:

• Title fraud or forgery of deed documents
• Mistakes in surveys, legal descriptions or public records
• Undisclosed liens, encumbrances or easements on the property
• Ownership claims from previous title holders
• Incorrect handling of trusts, estates or wills

If one of these title defects emerges, title insurance covers the legal costs and financial ramifications of resolving it and defending the insured’s interests as the property’s legal owner.

Why Do You Need Title Insurance in Canada?

While it is not legally required in Canada, there are 4 compelling reasons why title insurance is a vital protection for Canadian homebuyers and mortgage lenders alike:

Cover Major Risks

The policy provides crucial protection if covered title problems arise, such as:

• Title Fraud: This includes forged deed transfers or someone illegally impersonating the true owner to sell the home. Title insurance covers legal costs and financial losses.
• Undiscovered Liens or Encumbrances: These include unpaid taxes, undisclosed mortgages, easements or creditor liens tied to the property from previous owners. You could be liable for these debts if undisclosed.
• Boundary and Survey Disputes: Disagreements with neighbours over property lines and placement of fences or structures. Title insurance covers legal fees to settle these types of encroachment issues.
• Unknown Title Defects: These can prevent you from having full, sellable ownership of the property. Title insurance protects your legal interests as the property owner.

Added Peace of Mind

For most buyers, a home is the largest investment they will make in their lifetime. With so much on the line financially, title insurance provides peace of mind that your investment is protected starting the moment you take legal ownership. It defends your interests.

Streamline Closing

Your lawyer still conducts important title searches to verify ownership status before closing. However, title insurance can reduce the title search workload and liability burden on your lawyer. This allows for a smoother closing process, saving you legal fees.

A One-Time, Lifelong Cost

The title insurance premium is only paid once at the time of closing. However, it provides continuous coverage for as long as you or your legal heirs own the home. This one-time cost safeguards your investment for life.

Types of Title Insurance in Canada

There are two primary types of title insurance for Canadian homebuyers:

Lender’s Policy

This policy is mandatory for mortgage lenders to protect their financial interests. It covers the lender if legal title issues impact the validity of their registered mortgage on the property. It typically insures the lender up to the amount of your mortgage loan.

Owner’s Policy

This policy provides coverage for your interest as the property owner. It protects your equity stake in the home. An owner’s policy comes in two forms:

New Home Buyer’s Policy

This is purchased at the time of closing when you take ownership of a new property. You pay a one-time premium and receive lifelong coverage insured to the property’s total value.

Existing Owner’s Policy

If you’ve already owned your home, this policy can be purchased anytime after possession to get coverage. The coverage is customized based on when you buy the policy.

Both new and existing homeowners can benefit from owner’s title insurance. Some insurers offer enhanced policies with added coverage beyond standard title risks. Your real estate lawyer can advise if this extended protection is recommended for your situation.

Residential vs. Commercial Title Insurance

Title insurance policies are available for both residential and commercial properties. Commercial policies typically provide more extensive coverage to address the unique needs of businesses.

Some insurers offer extended coverage options, such as increased protection for post-policy forgery or fraud or coverage for known title defects.

What Does Title Insurance Cover in Canada?

While coverage varies by provider, a standard owner’s title insurance policy in Canada protects against:

• Title defects that could compromise your legal ownership rights
• Liens or encumbrances against the property’s title, such as unpaid debts from previous owners like property taxes, condo fees or creditor liens
• Incorrect legal descriptions, surveys, easements or other errors in public records related to the property
• Encroachment and boundary disputes with neighbouring properties
• Financial losses resulting from title fraud or forgery.
• Legal fees incurred to resolve claims against the title

Most policies also cover your spouse and legal heirs if they inherit the property.

What is Not Covered by Title Insurance?

Confirm with your provider, but 6 common exclusions may include:

• Pre-existing title defects are already known at the time of purchase
• Environmental hazards like land contamination
• First Nations land claims
• Title issues not disclosed in public records
• Problems revealed only through new property surveys
• Non-title related issues like zoning bylaw violations

How Much Does Title Insurance Cost in Canada?

Title insurance represents a minor closing cost relative to the value it provides long-term. The cost varies based on 5 factors: the Property type (residential vs. commercial), Property value, Location, Type of policy (lender’s vs. owner’s), and Coverage amount.

• Premium Range: $250 to $400 on average [Source]
• Property Value: Premiums are higher for more expensive homes.
• Location: Base rates can vary between different provinces.
• Insurer: Each company sets their rates.

Though not mandatory, title insurance offers lifelong coverage for a relatively low one-time payment that provides coverage for as long as you own the property. There are no ongoing payments or renewal fees.
Given the risks covered, most Canadian homebuyers purchase a title insurance policy for the added peace of mind on their major investment.

How to Buy Title Insurance in Canada?

Use the following best practices when purchasing title insurance:

• Title insurance is typically purchased during the closing process when buying a new home. However, existing homeowners can also purchase policies after possessing the property.
• Review your policy details thoroughly to verify accuracy.
• Make sure you understand the risks covered and excluded. Ask questions if any terms are unclear.
• Confirm the policy insures your home at its current total value.
• Compare premium rates offered by different Canadian insurance providers: First Canadian Title, Chicago Title, Lawyers’ Professional Indemnity Company (TitlePLUS), etc.

How to Make a Title Insurance Claim in Canada?

If you need to make a title insurance claim, there are 4 steps you should follow.

Step 1: Reviewing Your Policy Coverage

Review your title insurance policy before claiming to ensure the issue is covered. If you’re unsure, contact your insurer for clarification.

Step 2: Submitting a Claim Promptly in Writing

If you believe you have a valid claim, submit it to your insurer in writing as soon as possible. Include your policy number, contact information, and a detailed issue description.

Step 3: Providing Evidence and Documentation

Your insurer may require evidence and documentation to support your claim, such as a survey or legal documents. Provide any requested information promptly.

Step 4: Timelines and Process for Claim Resolution

The timeline for resolving a title insurance claim can vary depending on the issue’s complexity. Your insurer will investigate the claim and determine if it is covered under your policy. If approved, the insurer will work to resolve the issue, which may involve legal action or financial compensation.

What is the Land Title Assurance Fund?

In some Canadian provinces, additional options exist for protecting your title beyond traditional title insurance. Ontario’s Land Titles Assurance Fund (LTAF) provides compensation for losses related to title fraud or errors in the land registration system. However, the LTAF has limitations and may not provide as comprehensive coverage as title insurance.

Differences Between LTAF and Title Insurance

While the LTAF provides some protection against title issues, it differs from title insurance in several key ways:

• The LTAF only applies to properties in Ontario, while title insurance is available nationwide.
• The LTAF has a claims limit of $1 million, while title insurance policies can provide higher coverage amounts.
• The LTAF does not cover legal fees for defending your title, while most title insurance policies do.

Despite the LTAF in Ontario, title insurance is still recommended for most homebuyers. Title insurance provides more comprehensive coverage and can protect you against a wider range of potential issues.

Tips for Canadian Homebuyers on Title Insurance

Follow these tips to maximize the value of title insurance for your home purchase:

• Read your policy thoroughly and get clarity from your provider on any confusing terminology or unclear passages.
• Discuss title insurance coverage options with your real estate lawyer to determine the right policy to protect your home value properly.
• Ensure your home, land, secondary buildings, and all property components are insured to their full replacement value.
• Keep copies of your title insurance policy documents and materials safe, along with other ownership papers.

Summary

While optional, title insurance provides Canadian homeowners and lenders invaluable financial protection by covering risks associated with a property’s legal title. It covers legal costs, liens, encumbrances, title fraud, etc.

This results in added peace of mind for homebuyers making the largest investment. Both new homeowners at the time of purchase and existing homeowners who buy policies later can benefit from title insurance protection. Given the minimal one-time cost to safeguard such a major asset, all Canadian homebuyers should consider title insurance.

FAQs

Article Sources

1. Title Insurance – rbcroyalbank.com
2. Understanding Title insurance – fsrao.ca