Title Insurance - What It Is And Why Prudent Buyers Don't Pass On It

When you buy a home and receive title, you have legal ownership and the various rights associated with it. But what looks good on paper may not always be the case in actuality. To protect home owners and their mortgage lenders, title insurance has become commonplace in Ontario since around the turn of the century. Our post this week answers a few of the most common questions about title insurance.

Is Title Insurance Mandatory?

In a word - no. However, although title insurance is not required by law, you might not be successful in obtaining a mortgage without it. Although a lawyer can conduct a title search to check for problems, some issues are not detectable at the time or by standard searches. That's one reason why many lawyers won't close a real estate transaction without title insurance.

What Does Title Insurance Cover?

Standard policies cover losses arising from problems that may interfere with your having clear ownership. These can include:

  • Existing liens - often from unpaid debts or taxes owed by the previous owner
  • Title fraud --which typically occurs when an unscrupulous non-owner manages to secretly obtain title, obtain a mortgage and make off with the funds.
  • Zoning problems
  • Errors in surveys and public records

What Does Title Insurance Not Cover?

As with all types of risk management, title insurance policies have certain exclusions. Some of the problems that a policy may not cover are:

  • Known title defects - If you received disclosure on these before the purchase, you'll likely be out of luck trying to claim on them later
  • Environmental contamination - such as hazardous substances that surface on the property after you take ownership
  • Problems that are discoverable only by a new land survey after the time of purchase
  • Damages normally covered in a typical homeowner's insurance policy, such as flood and fire

With one of life's largest investments at stake, prudent buyers swallow the expense of title insurance. The cost depends on the property's value, but often totals a few hundred dollars. It's a one-time premium in exchange for added protection that lasts for as long as you own the property.

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