You just moved into your new property. You go to install a new fence, and you discover that it's not on the property line – 6 inches of your land has been on your neighbor's side of the fence for years! Uh oh... now what?
Title insurance might save the day!
What is Title Insurance?
Title insurance is a type of insurance policy that protects property owners and lenders from losses associated with title issues or other covered risks. "Title" describes your legal right of ownership to the land. Effectively, title insurance allows purchasers to insure against future potential title issues, rather than conducting additional due diligence at the outset of the transaction. Title insurance requires one-time payment, with the policy being effective for as long as you own the property.
Common Coverage Offered by Title Insurance
The following is a non-exhaustive list of potential issues that a standard title insurance policy may cover:
- Title defects
- Unmarketability of title
- Legal issues involving access
- Encroachment issues, adverse possession, property line disputes
- Easements over the property (i.e. Someone has a legal right of way over the property)
- Liens or charges on title
- Work orders from a municipality
- Tax or utility arrears from previous owner
- Certain violations of municipal regulations
- Title fraud or forgery
Title insurance policies also usually contain a litigation provision in which the insurer undertakes to defend your title and other insured risks in any court case that is based on the provisions in your policy. For example, if a neighbour was to build a structure that encroached onto your land, if covered under the policy, the title insurer may assist in retaining counsel on your behalf, commencing a proceeding, and may pay for all legal fees and expenses incurred to rectify the issue.
What is Not Covered?
Title insurance policies often contain numerous exemptions or restrictions that are not typically afforded under a standard policy. Some title insurers will provide additional endorsements, depending on the circumstances at hand, to meet your specific needs. If title insurance does not insure over an issue, you will need to speak with your lawyer for further direction on how to proceed. The following is a non-exhaustive list of issues that are not usually covered by a standard title insurance policy:
- Physical and structural defects to the property
- Certain governmental powers/intervention (i.e. expropriation, violation of by-law etc.)
- Environmental risks
- Risks that are created by, allowed by, known to, or agreed to by the insured
A common area of confusion lies in the distinction between title insurance and home insurance. While home insurance protects an insured from unexpected loss or damage to the physical property, title insurance protects the insured from loss or defects relating to the legal title of the property. It is imperative to note that title insurance is not an alternative to home insurance.
Is Title Insurance Mandatory?
It is not mandatory to purchase title insurance when acquiring a property in Ontario. Nevertheless, a lender may refuse to provide financing if a title insurance policy is not taken out on their behalf (i.e. a lender policy).
The most common alternative to title insurance is to obtain a solicitor's opinion on title. This alternative requires your lawyer to conduct numerous "off-title" searches that can be costly and time consuming. You would also need to provide your lawyer with, or obtain, an up-to-date survey of the property. The cost to obtain an up-to-date survey alone would likely exceed the cost of a standard title insurance policy, which is why many mortgagors opt to obtain title insurance. Furthermore, the only recourse that a purchaser may have in relation to a missed title defect would be against the lawyer who provided the opinion, which may be further limited given the circumstances and conduct of the parties. Given the potential liability for giving a solicitor's opinion on title, many lawyers refuse to act on transactions that are not title insured.
Working with your Lawyer
While title insurance may provide coverage for certain losses, it is not an alternative to retaining a lawyer on your transaction, and there is no replacement for sound legal advice and competent representation. Title insurance and lawyers work in conjunction to provide maximum protection to homeowners. For example, if you do find yourself needing to commence litigation against a neighbor, it is often worth first checking if your issue is covered by title insurance.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
