Before the closing of a real estate transaction, thorough searches of public records are conducted to ascertain the property's previous ownership and any relevant past transactions. Buyers rightfully expect to acquire a property that is free from any encumbrances or claims, which typically need to be addressed and resolved before the closing. However, there are instances where title issues remain undiscovered or unresolved at the time of closing. These defects can diminish the marketability of the property when the buyer decides to sell it later on, and depending on the nature of the issue, may also incur expenses to rectify. For instance, a survey might fail to reveal that an additional structure on the property was constructed without proper authorization. In such cases, the buyer could face unexpected costs if compelled to remove the unauthorized addition in the future.

Necessity of Title Insurance: Understanding Your Obligations

Title insurance becomes a necessity when securing a mortgage, as virtually all mortgage lenders mandate this protection, typically for an amount equivalent to the loan. This insurance coverage remains effective until the loan is fully repaid. Similar to mortgage insurance, title insurance safeguards the lender's interests, yet it's the borrower who bears the cost of the premium. This premium is a one-time payment made upfront at the time of closing.

Protected Parties: Understanding Title Insurance Coverage

Title insurance policies can be issued to protect various parties, including purchasers of new or resale homes, condos, and vacation properties, as well as lenders, or both. These policies offer coverage for a range of risks commonly associated with property ownership. Examples of risks typically covered include survey irregularities, forced removal of existing structures, claims arising from fraud, forgery, or duress, unregistered easements and rights-of-way, lack of access to the property, work orders, zoning and setback non-compliance, among others. Generally, for a risk to be covered, it must have existed as of the date of the policy. However, like any insurance policy, certain risks may be excluded, such as native land claims and environmental hazards. It's crucial to consult with your lawyer to understand which risks are covered and which are excluded under your specific policy.

When Does Insurance Coverage Terminate?

When title insurance protects the purchaser, it remains valid as long as the insured purchaser holds title to the property. Additionally, certain policies extend coverage to individuals who inherit title due to the purchaser's passing or to specific family members to whom the property was transferred for a nominal fee, such as a spouse or children.

Conversely, when title insurance covers the lender, it stays in effect for the duration of the mortgage being held against the property. In the event the lender faces a loss or damage due to a covered risk upon enforcing its security, it is protected under the policy. Typically, lenders are covered for up to the principal amount of the mortgage.

The premium for title insurance is a one-time payment made at the time of property purchase. In Canada, it's typically the purchaser who covers this cost, although there are instances where the seller may do so. Some policies automatically provide coverage for both the purchaser and lender, while others offer this dual protection for a small additional fee.

Title Insurance: Providing Protection and Peace of Mind

Title insurance serves as a safeguard against potential delays in the closing process caused by title defects. Moreover, if a title-related issue emerges regarding a risk covered by the policy, title insurance covers the legal fees and expenses involved in defending the insured's title. In the event of a loss, the policy also provides financial compensation. This comprehensive coverage offers peace of mind and helps ensure a smooth closing process for all parties involved.