Title insurance can easily seem like another unnecessary add-on to the already complicated and costly process of buying a house, but nothing could be further from the truth. It can help speed up the process of closing on your new home, while protecting you and your heirs against a variety of unforeseen and expensive risks. It offers cost-effective, long-term, powerful protection, but there is a great deal to know about it.
Your notary or lawyer is a fantastic resource to learn about this vital protection for you as a homeowner—we’ve compiled some of the most frequently asked questions they receive:
• What is title insurance?
Title insurance is insurance that protects against losses from defects in your title—the legal ownership of your property. These defects can include issues with the property survey, the registration of your land title and problems you did not know you inherited from a previous owner, like back taxes or improper renovations. Title defects are unpredictable and expensive, but title insurance lets homeowners protect themselves.
• Are title insurance and home insurance the same thing?
It is common to confuse home insurance with title insurance, or to assume because you have home insurance, you are fully protected. But they cover completely separate risks, and even their premiums work differently.
Home insurance deals with your home’s physical structure, and the items inside it. Title insurance deals with your legal ownership of the property, even if it is an empty lot. Home insurance covers potential future physical damage to the home, or losses to replace stolen insured items. Title insurance covers (apart from future fraud) losses from issues that already existed, but that you did not know about.
Here is a classic example of the difference:
*Are you out money because your shed flooded or got broken into? You may be covered by home insurance.
*Are you out money because the shed turned out to be on your neighbour’s land (a mistake by the surveyor) and you had to move it? That may be a title insurance claim.
What is covered by title insurance?
Most title insurance policies cover losses from problems that already exist but that you do not know about.
If the survey for your property was not done correctly, you will not know until you are forced to move the shed you unwittingly built on your neighbour’s land.
If the previous owner of your home did renovations without a permit, you will not know until the city forces you to bring your home up to code.
If the previous owner left taxes on the property unpaid, or there were taxes that were not addressed or correctly levied on the property when the deal closed, you will not know until the government comes looking for those back taxes.
Title insurance may cover your losses in each of these scenarios, and many more. Another notable point of coverage is title fraud—a thief using your identity to borrow money against your home, or even sell it out from under you.
What is NOT covered by title insurance?
It is important to remember title insurance coverage often depends on whether or not an issue was known about when you bought the policy. While you can always get owner’s title insurance at any time, it’s best to get your policy as you are buying the house. That way, any issues you learn about afterward can fall under its umbrella—coverage almost never applies to title defects you knew about before getting the policy. There are some instances where title insurance can still protect you from a known title defect, but it is important to ask your lawyer or notary.
Title insurance covers the legal existence of your property, not the property itself. The losses it covers will often originate from something physical—moving a shed, bringing your home up to code—but the coverage comes from the title defect that led you to be responsible for the cost, not the issue that incurred the cost.
Here is a quick example: A couple finds a leak in their roof and has to pay to have it repaired, as well as fixing the water damage the leak caused before it was discovered. Does title insurance apply?
• It can, if the previous owner had done work involving that roof without a permit. The covered risk is from the previous owner’s lack of a permit, not the possibility the roof might leak.
• If the previous work had a permit, or if the old owner never did work on the roof, title insurance unfortunately can’t cover the losses from repairing it.
The most common coverage confusion we see comes from this perceived grey area between home and title insurance. Just because the builder or previous owner did a shoddy job doesn’t always mean title insurance can cover the losses. When the government makes you bring a previous owner’s build up to code, always verify if the work was properly permitted—if it wasn’t, your next call should be to your title insurer to make a claim.
If your neighbor makes a claim against you, for instance alleging your new garage extension encroaches on their property, the issue title insurance checks for is the property survey, not the garage itself.
Is title insurance mandatory?
Yes and no. There are two types of title insurance policies: one that protects the lender and one that protects the property owner—you. The law does not make either mandatory, but most lenders will require you to buy the lender policy as part of securing your mortgage from them. The owner policy is optional, so it is important to make sure your notary or lawyer includes an owner’s policy as well when you close on your home.
One more huge point in favour of an owner policy is that it lasts as long as your title does. If you refinance your mortgage with a different lender, they will get you to buy a new lender policy, but you will never need to buy a new owner policy on the same property—you are still covered. Always make sure when you are discussing with your notary or lawyer that you are talking about an owner’s title insurance policy, and never be afraid to ask questions about the coverage.
Written by My DLC Marketing Team