Title Insurance protects against loss resulting from title or survey defects that would have otherwise been revealed by an up-to-date Real Property Report.
By definition, Title insurance is a contract, in which a title insurer indemnifies a property owner, lender or borrower against loss or damage sustained from covered title defects, fraud, and forgery. It is not a guarantee of title, but rather compensates an insured person if title is not as set out in policy. Title insurance also protects you from loss associated with fraud or forgery of the title itself.
Why Purchase Title Insurance?
In Canada, Title Insurance is often purchased on residential properties for the following reasons:
- Survey Coverage – It is in most cases acceptable to lenders instead, or in combination with, a faster and less expensive survey.
- Gap coverage – Title Insurance is quite often used to allow transactions to close before all documents are fully registered at the land titles office. Insuring the buyer and lender against loss from other interests that may be registered against the title before full registration has completed. Title Insurance helps to provide a smooth closing even for last minute real estate transactions. It is not widely used in For Sale By Owner [FSBO] transactions, simply due to lack of product knowledge.
- Known Defects – There may be known defects such as encroachments that appear on the Real Property Report [RPR] or prior undischarged mortgages that have not been cleared from the registered title. These discrepancies may be covered by Title Insurance. In this case, purchasing Title Insurance can help the real estate transaction close on time.
What are the Benefits of Title Insurance?
- Eliminates the need for an up-to-date RPR.
- Reduces any delays in funding.
- Protects against fraud and forgery.
- Offers “gap coverage” allowing the sale to close prior to receiving an up-to-date RPR.
- Protects against any defects in the title.
- Protects against outstanding work orders.
- Offers more coverage than a lawyer opinion alone.
- Simplifies the entire closing process, reduces time, and reduces cost for the clients!
How Long Does Coverage Last?
Title Insurance is valid for the lifetime of the mortgage itself. The Policy is transferable to beneficiaries who may inherit the land or property. The policy is also transferable if the mortgage is sold or reassigned to a third party lender or a mortgage default insurer.
What Does it Cost?
Title Insurance is a very affordable option. A Real Property Report [RPR] may vary in price, depending on the size and location of the property, but Title Insurance is usually in the $250 range, compared to an RPR, which has an approximate price of around $1500.
Please Note: When dealing with legal contracts such as RPR’s and Title Insurance, always seek advice before taking action.