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Title Insurance FAQ
Q. Title
insurance is growing in popularity in Canada. But what
is
it exactly? Should I get it? Do I
need it?
Q. Won't a search of title keep
problems from arising?
Q. Is Title Insurance just like any other
insurance?
Q. What information do I need to provide to get a
policy?
Q. Who is protected with Title Insurance?
Q. Are there different kinds of policies?
Q. I'm refinancing, why do I need title insurance?
Q. I am an existing home owner without a policy,
can I still
benefit from title insurance?
Q. If
the value of my home increases over time, will my policy
still cover the full value of my home?
Q. When is the policy issued?
Q. How does Real Estate fraud occur?
Q. How long is the title insurance coverage and
what are the
costs?
Q. How are premiums for Title Insurance
determined?
Q. What other fees are involved?
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Q. Title insurance is growing in
popularity in Canada. But what is
it exactly? Should I get it?
Do I need it?
A. Title insurance is a contract of
insurance between the insured and the
title insurance company that provides the
purchaser with comprehensive
no-fault protection against title risks inherent in real
estate transactions, including:
■ Defects in the title to the property
■ Unmarketability of title
■
Encumbrances and their priority
■ Survey errors
■ Adverse claims to property
■ Fraud and forgery
■ Invalid or unenforceability of insured mortgage
on title
■ Authenticity of registered documents on title
■ Forced removal of structures on the insured
property
■ Known risks which can be added to coverage to
facilitate the
transaction
■ Other matters specified in the policy
In addition to policy coverage, the insured also
receives:
■
indemnity for actual loss or damage for the amount of
the policy
■ payment of legal fees and costs to defend title
■ a “no-fault” method to resolve title problems
Q. Won't a search of
title keep problems from arising?
A. Even the most careful search of the public records
will not find every title problem. Because some problems
are hidden, your title may appear to be perfect, but in
fact there may be issues (ex. fraud) that can be
extremely expensive to rectify and can only be done at
the cost of the home owner.
Q. Is Title Insurance
just like any other insurance?
A. Title Insurance is unique in that it insures against
loss from matters that happened in the past, whereas
other forms of insurance insure against loss from events
that may happen in the future. For example, if an
insured suffers loss because it is determined after
closing that a portion of the house encroaches onto an
easement, the
insured would be covered for that loss even though it
took place in the past.
Q.
What information do I need to provide to get a policy?
A. To purchase an existing home owner's policy, you will
need to provide either a Municipal Property Assessment
Corporation (MPAC) statement, or the latest copy of your
municipal property tax bill. The purpose of these
documents is to establish a current and reliable
estimate of the value of the property being insured.
Q.
Who is protected with Title Insurance?
A. Under a Title Insurance policy it is the home owner
who has a direct claim against the insurance
company if a specified title risk causes a loss,
regardless of the source of that loss.
Q.
Are there different kinds of policies?
A. Yes. Owner's policies are issued to real estate
owners. Purchaser's policies are issued to purchasers of
real estate under contract. Mortgage policies are issued
to mortgage companies. In addition there are several
other special forms of policies. There is a type of
policy to meet the requirements of almost any form of
real estate transaction.
Q. I'm refinancing,
why do I need Title Insurance?
A. When you refinance you are obtaining a new loan,
even if you stay with your original lender. Your lender
will require lender's Title Insurance to protect their
investment in the property. You will not need to
purchase a new owner's title policy; the one you bought
at closing is good for as long as you and your heirs
have an interest in the property. Even
if you recently purchased or refinanced your home, there
are some problems that could arise with the title. For
instance, you might have incurred a mechanics
lien from
a contractor who claims he/she has not been paid. Or you
might have a judgment placed on your house due to unpaid
taxes, homeowner dues, or child support for instance.
The lender needs reassurance that the title to the
property they are financing is clear.
Q. I am an existing
home owner without a policy, can I still benefit from
Title Insurance?
A. Yes, Title Insurance is now available to existing
home owners as well as those who are in the process of
buying a home. Home owners who did not obtain a title
insurance policy when they bought their home can benefit
from the protection Title
Insurance provides. Existing
Home Owner Policies are available and provides those who
already own their home with the protection of Title
Insurance. It can easily be ordered through a lawyer
during a refinance transaction or at any time during the
course of home ownership. Q.
If the value of my home increases over
time, will my policy
still
cover the full value of my
home? A.
Yes, Title Insurance policies cover up to 200% of
the value of your home when policy was purchased. For
example, if you purchase an existing home owners policy
and your home is worth $400,000 at the time the policy
was purchased, you will be insured up to $800,000.
Q. When is my policy issued?
A. A purchaser's policy is usually issued after the
contract has been executed by both parties or after the
signed contract has been recorded, while an owner's
policy is usually issued after the deed to the buyer is
'delivered' and recorded. The mortgage policy of
Title Insurance is usually issued after the mortgage or
deed
of trust has been properly executed and recorded.
An owner's policy protects only the owner while a
mortgage policy protects only the holder of the mortgage
on the property. Separate policies are required to
protect both interests. Special rates are available when
both owners and
mortgage policies are purchased at the
same time.
Q. How does Real
Estate fraud occur?
A. Real estate fraud takes several forms, but a
common denominator is that fraudsters are sophisticated
and armed with the appropriate documentation and
necessary knowledge of the real estate process to enable
them to perpetrate these major crimes. It is estimated
that real estate fraud amounts to $1.5 billion a year
across Canada.
A typical example of real estate
fraud occurs as follows:
1. A
fraud artist obtains title to a property via a
fraudulent transfer
document (a deed).
2.
The fraud artist goes to the bank and obtains a mortgage
that is
then registered against the property.
3. When the fraud artist does not make any
mortgage payments, the
lender will serve notice that it intends to sell
the property, and the
scheme is revealed to the legitimate owner when
they receive
notice that the lender is trying to sell their
property.
The above example is a fraudulent
transfer and mortgage, but other types of fraudulent
transactions also occur, such as
Spousal Impersonation
fraud and fraud by Breach of Undertaking. Thieves often
target properties that are mortgage free and where
owners have a good credit rating, this allows them to
apply for a significant mortgage.
Q. How long is the Title Insurance coverage
and what are the costs?
A. In the case of Title
Insurance covering the
purchaser, Title
Insurance remains in effect as long as
the insured purchaser has title to the land. Some
policies also protect those who received title as a
result of the purchaser's death, or certain family
members (e.g. a spouse or children) to whom the property
may have been transferred for a nominal consideration.
A residential Title Insurance policy in Canada for a
typical home of less than $500,000 costs approx $350
including taxes (see chart below for exact figures).
However, a Title
Insurance policy often reduces the
legal bill of the purchaser by more than the cost of the
policy because several searches on the property are
waived by the title insurer.
The premium for Title Insurance is paid once (at the
time of purchase) and most Title
Insurance policies have
no deductible so it is truly a one-time fee. Generally
speaking, the purchaser of the property pays for the
Title Insurance, though there can be situations where
the seller pays for it.
Q. How are premiums for Title
Insurance determined?
A. Title Insurance premiums are determined by the
amount and type of coverage provided. Unlike other
insurance premiums, however, the Title Insurance premium
is paid only once as the policy is effective for so long
as title or "ownership" remains in the name of the
insured, or his/her heirs or devises.
Typical costs for owner and lender
coverage is set out below
(including PST):
|
Value of Transaction |
Premium |
|
Less than $200,000 |
$300 |
|
$200,000.01 to $500,000 |
$350 |
|
Over $500,000 |
$350 plus $0.90
per $1,000
over $500,000 |
For Residential Condominiums,
premiums are typically (including PST):
|
Value of Transaction |
Premium |
|
Less than $200,000 |
$160 |
|
$200,000.01 to $500,000 |
$190 |
|
Over $500,000 |
$190 plus $0.90 per $1,000
over $500,000 |
For an existing Homeowner policy
(owner's coverage only; lender's coverage not required):
|
Value of Transaction |
Premium |
|
Less than $500,000 |
$240 |
|
Over $500,000 |
$240 plus
$0.90 per $1,000
over $500,000 |
Q. What other fees
are involved?
A. Most often, before an existing home owner
Title Insurance policy can be purchased a lawyer will need to
do a search for executions on the purchaser, as well as
sub-searches on the property (for liens, judgments,
etc.). These inexpensive searches cost approximately $11
per name for execution searches, and $18 per search on
the sub-title.
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Damages
A cash compensation ordered by a court to offset losses
or suffering caused by another's fault or negligence.
Deed
A written and signed document which sets out
recognitions of the parties towards a certain object.
Under older common law, a deed had to be sealed; that
is, accompanied not only by a signature but with an
impression on wax onto the document. The word deed is
also most commonly used in the context of real estate
because these transactions must usually be signed and in
writing.
Easement
The right to use the real property of another for a
specific purpose. The easement is itself a real property
interest, but legal title to the underlying land is
retained by the original owner for all other purposes.
Typical easements are for access to another property
(often redundantly stated "access and egress," since
entry and exit are over the same path), for utility or
sewer lines both under and above ground, use of spring
water, entry to make repairs on a fence or slide area,
drive cattle across and other uses. Easements can be
created by a deed to be recorded just like any real
property interest, by continuous and open use by the
non-owner against the rights of the property owner for a
statutory number of years, typically five ("prescriptive
easement"), or to do equity (fairness), including giving
access to a "land-locked" piece of property (sometimes
called an "easement of necessity").
Encumbrance A general term for
any claim or lien on a parcel of real property. These
include: mortgages, deeds of trust, recorded abstracts
of judgment, unpaid real property taxes, tax liens,
mechanic's liens, easements and water or timber rights.
While the owner has title, any encumbrance is usually on
record and must be paid for at some point.
Lien
Any official claim or charge against property or funds
for payment of a debt or an amount owed for services
rendered. A lien is usually a formal document signed by
the party to whom money is owed and sometimes by the
debtor who agrees to the amount due. A lien carries with
it the right to sell property, if necessary, to obtain
the money. A mortgage or a deed of trust is a form of
lien. There are numerous types of liens including: a
mechanic's lien against the real property upon which a
workman, contractor or supplier has provided work or
materials, an attorney's lien for fees to be paid from
funds recovered by his/her efforts, a medical lien for
medical bills to be paid from funds recovered for an
injury, a landlord's lien against a tenant's property
for unpaid rent or damages, or a tax lien to enforce the
government's claim of unpaid taxes.
Execution
The act of getting an officer of the court to take
possession of the property of a losing party in a
lawsuit (judgment debtor) on behalf of the winner
(judgment creditor), sell it and use the proceeds to pay
the judgment. The procedure is to take the judgment to
the clerk of the court and have a writ of execution
issued which is taken to the sheriff (or marshal,
constable or other authorized official) with
instructions on what property to execute upon. In the
case of real property the official must first levy
(place a lien on the title), and then execute upon it
(seize it). However, the judgment debtor (loser in the
lawsuit) may pay the judgment and costs before sale to
redeem real estate.
Spousal Impersonation Fraud
This type of fraud can occur when one spouse mortgages a
property for their own benefit using an accomplice to
impersonate their spouse.
Fraud by Breach of Undertaking
Fraud, unfortunately, is not limited to rogue clients.
Fraud can also occur by way of a lawyer’s/notary’s
breach of an undertaking to pay off and obtain a
discharge of a mortgage. That is, the vendor’s lawyer or
notary absconds with the funds intended to be used to
pay off the vendor’s pre-existing mortgage. Accordingly,
while title to the property has been transferred into
the name of the new purchaser, the property remains
subject to the prior mortgage.
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