This article has been updated from a previous version.
For most people, buying a home represents the largest financial transaction of their lifetime. While home insurance seems like a necessary step when purchasing a home, many homeowners are unaware of another important kind of insurance: title insurance.
Your home insurance policy protects you from costly damage resulting from fire and theft. However, what good is your home insurance if you don’t legally own your home? Title insurance safeguards you from defects against your home’s title you might not even be aware of.
What is title insurance fraud?
Title fraud, also known as real estate title fraud, is a serious crime that affects homeowners and their lenders. It occurs when a fraudster uses stolen personal information or forged documents to transfer the ownership of your home to themselves without your knowledge.
Here are three common ways that your title could be defrauded:
- Identity theft: The fraudster steals your personal information.
- Forgery: They create fake documents to transfer the title of your home to their name.
- Mortgage fraud: Using the fraudulent title, they secure a mortgage on your home and vanish with the funds.
If you fall victim to title fraud, you may be eligible for compensation through the Ontario government’s Land Titles Assurance Fund (LTAF). This fund is designed to help cover losses resulting from title fraud.
Protecting yourself with title insurance can also provide an additional layer of security against such fraud.
Related: Looking to buy a home? Why you need to pre-qualify first
What is title insurance and why is it important?
More often than not, you need to show proof of title in the home buying process. Unless you’re paying for your home in cash, you’ll need to obtain a mortgage. Before a lender approves your mortgage, you’ll need to show proof of home insurance and title insurance (although sometimes a survey will be sufficient).
When you purchase a home, you obtain the title, which includes all legal rights related to the ownership and boundaries of the property.
Title insurance safeguards this title against fraud and complications that could impact your ownership. It protects against a range of issues, including the following:
Liens
A lien is a legal claim against a property, often used as collateral to ensure the payment of a debt. For example, if the previous owner had unpaid debts, the creditor might place a lien on the property. This means the debt must be settled before the property can be sold or refinanced.
Outstanding property taxes
Imagine a scenario where the previous owner failed to pay property taxes, and your local municipality demands payment from you. Without title insurance, you’d face significant legal fees, turning your dream home into a nightmare.
Rights of way
This refers to the legal right for someone to pass through your property. For instance, if a neighbor needs to cross your land to access their own property, they might have a right of way. This can affect how you use your property and may limit certain activities.
Unpaid work orders
These are orders issued by local authorities for necessary repairs or improvements that haven’t been completed or paid for. If the previous owner didn’t comply with these orders, the responsibility might fall on the new owner to address and pay for them.
A ‘survey’ refers to a detailed map or plan of a property. It outlines the home’s boundaries, dimensions, structures, and any encroachments (neighboring buildings or fences).
Types of properties covered by title insurance
Title insurance policies can provide coverage for a variety of property types, including:
- Houses: Single-family homes and multi-family residences.
- Condominiums: Individual units within a larger building or complex.
- Cottages: Vacation homes or seasonal properties.
- Rental units: Properties rented out to tenants.
- Vacant land: Undeveloped plots of land.
- Cooperatives: Housing units owned collectively by a corporation.
- Leased properties: Properties leased to tenants under long-term agreements.
- Rural properties: Homes and land located in rural or agricultural areas.
What does title insurance not cover?
Title insurance provides valuable protection, but there are certain exclusions you should be aware of. Title insurance does not cover:
- Known title problems: Any issues with the title that were known or disclosed before purchasing the policy.
- Environmental issues: Hazards or contamination related to the environment.
- Indigenous land claims: Claims on the land by Indigenous peoples.
- Property additions: Any additions or changes to the property made by you after the purchase.
- New inspection discoveries: Issues that are only discoverable through a new inspection of the property.
- Unrecorded matters: Problems that aren’t listed in the public record, such as unrecorded liens or encroachments.
Understanding these exclusions can help you better prepare and protect your investment.
How can you get title insurance?
When you purchase a property in Canada, your lawyer typically arranges title insurance during the closing process. However, existing homeowners can also obtain policies to protect their title.
TitlePLUS is a leading Canadian title insurance provider, offering comprehensive coverage for homeowners. To protect yourself, you can purchase a homeowner’s title insurance policy directly from TitlePLUS or other title insurance providers in Canada. As with home insurance, it’s best practice to compare rates to ensure you get the best coverage at the best price.
How much is title insurance?
The cost of title insurance varies based on the size and value of your property. Generally, it is a one-time fee of about $250 to $500. After that, you’re covered for life (or until you sell your home). This means that you can transfer it to your spouse, heirs, or children, ensuring they have legal proof of ownership and saving them potential frustrations in the long run.
Read more: The hidden costs of buying a home
The role of your real estate lawyer
Your real estate lawyer plays an important role in the home-buying experience, ensuring that the transaction is legally sound.
Before closing, your lawyer will perform a title search to verify ownership and identify any title defects. They ensure that the person you’re buying the home from is the legal owner. The search will also uncover any hidden issues like unpaid property taxes or outstanding liens. If any issues are discovered, your lawyer should let you know and resolve them in time for closing.
Read next: What are real estate contingencies?
Compare Mortgage Rates
Engaging a mortgage broker before renewing can help you make a better decision. Mortgage brokers are an excellent source of information for deals specific to your area, contract terms, and their services require no out-of-pocket fees if you are well qualified.
Here at RATESDOTCA, we compare rates from the best Canadian mortgage brokers, major banks and dozens of smaller competitors.
