Title Insurance has become a routine part of buying residential real property in Saskatchewan. For a typical new home buyer, there are two types of title insurance policies to be aware of. A lender title insurance policy (“lender policy” or “lender policies”) protects lenders such as banks and credit unions, and a homeowner title insurance policy (“homeowner policy” or “homeowner policies”) protects homeowners. Home buyers are often unaware of title insurance until they attend their lawyer's office to sign closing documents. Whether you are a first-time home buyer or an experienced property owner, this brief article is intended to give a brief explanation of the basic difference between a lender policy and a homeowner policy. Title insurance is a complex insurance product, and you should consult your lawyer for any questions you may have when obtaining or considering a title insurance claim.
In this article, “homeowner” refers to the owner of various types of residential real estate, including homes and condos, and “home” refers to various types of residential real estate, including homes and condos.
What is a Lender Policy?
A lender policy is an insurance policy which protects the lender from specific title ownership risks identified in the policy, which may affect the lender's ability to recover from the mortgage security it takes from the home buyer. These risks include the home being constructed without the correct permits or not being built within the legal lot lines of the land. To address these sorts of risks, mortgage lenders often require home buyers to obtain a lender policy or, in the alternative, a surveyor's certificate and off-title searches such as a search of city and utility inspection records. A surveyor's certificate shows the position of the buildings on the site relative to legal lot lines and requires the surveyor to attend the site and prepare a diagram. While useful for other purposes, a surveyor's certificate may not be available in time for closing and comes with an attendant cost. Considering these issues, a lender policy is often an attractive alternative. Lenders require home buyers to pay for the lender policy as part of their agreement with the homeowner.
The primary purpose of your lender's policy is to protect the lender's investment in your home and the security it has taken in its mortgage. A lender policy can also assist in ensuring that a real estate transaction closes on time as it provides what is commonly called “gap coverage”. Gap coverage allows lawyers to request and release mortgage funds during the “gap” in time between when a mortgage is submitted to the Saskatchewan Land Titles Registry and its processing and registration.
A lender policy benefits the lender. A homeowner has no, or only very limited, rights under a lender policy. A lender policy generally does not protect the homeowner at all.
If you are fortunate enough not to be financing a home purchase with a lender through a mortgage, a lender policy is not relevant.
What is a Homeowner Policy?
Buying a home has title ownership risks for an owner, too, like missing permits or misplaced buildings. A homeowner policy lists the homeowner as the insured under its terms and therefore provides the owner with the indemnity protection described in the title insurance policy. When our clients finance the purchase of their home with a mortgage, our office strongly recommends a homeowner policy in addition to the lender policy that is often required by the lender. Although homeowner policies and lender policies are separate products, and title insurance premiums vary over time, location and firm, we currently find that our clients experience a minimal to slight increase in cost for a homeowner policy when a lender policy is being purchased at the same time.
If a home buyer is not financing the purchase of their home with a mortgage, they still have the option to purchase a homeowner policy. In this situation, homebuyers pay a more significant premium for their homeowner policy.
A homeowner policy is a product to protect homeowners from specified potential title risks resulting from owning a home. Depending on the title insurance provider, a homeowner policy protects homeowners from (currently) roughly thirty (30) covered risks. If a homeowner policy is purchased, the title insurance provider agrees to indemnify the homeowner from the covered risks existing at the time of issue identified in the policy. A few typical examples of the generally covered risks are described below:
- Renovations completed without proper permits where a municipality takes action against the homeowner to rectify the problem.
- Defects which would have been revealed on a current surveyor's certificate, including building encroachments onto neighbouring lots or onto your lot from a neighbouring lot.
- Damages resulting from being a victim of fraud in relation to your home title.
- Outstanding tax or utility payments that the previous owner did not pay.
The extent to which coverage under these situations is available will depend on the specifics of the homeowner policy. It is always best to consult with your lawyer regarding your situation, as coverage under title insurance is dependent on many different factors.
Title insurance does not provide absolute protection against all risks of home ownership but has become an important option for managing risks for both lenders and homeowners. Just because your lender has required you to obtain a lender policy covering its risks, you are not protected as the owner unless you obtain a homeowner policy as well. Whether you should obtain a homeowner policy is a question you should consider asking your lawyer when buying a home.
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.