What is Title Insurance?

You own your home, right?

If only things were that simple!

When you purchase a property, your name or the names of any co-owners go onto the official title of that property within the land registry system, and the property is now yours. Presumably, the only entity that could then take that property away from you is a mortgage lender, either a bank or a private lender. If you have a mortgage on the property and fail to make payments, your lender could effectively repossess the property. Other than that, you’re free and clear – right?

But what about fraud?

Title fraud is a serious concern in the real estate world, and it should be a serious concern for buyers. Imagine if a fraudster was able to steal your home’s title out from under your nose. In other words, they commit a fraud that makes them the legal owner of your home, not you! It creates a significant problem that’s not easy to solve.

That’s why there’s title insurance. Title insurance exists to protect property owners from fraudsters, so that no one can fraudulently claim to own their home.

So how does title insurance work? Why is title insurance important for any home buyer? What happens if someone skips out on title insurance?

What is title insurance?

A title insurance policy insures the title on a home against fraud, defects, and errors. While we’ll talk about fraud more in a moment, there may be other issues with the title on a property where title insurance as a new buyer can protect you.

If the previous owner was failing to pay utility bills, or failing to pay property taxes or condominium fees, there may be a lien on the property. Title insurance can ensure that you are not held responsible for those amounts that are covered by the liens. It also covers you against any errors that have been made along the way in recording the title, or errors that have been made in land surveys.

Title insurance can cover many of the issues that arise under these circumstances, such as the legal fees in disputing title fraud. It attaches to the property for the entire time that you hold that title, and you may even be able to transfer your title insurance to a former partner if you split and they keep the house, or to your children if they inherit your property. 

It’s also important to note what title insurance does not cover. It does not cover any issues that you knew about with title before purchasing the property. It also does not cover any environmental issues (such as if your land was on top of an environmental hazard), or Indigenous land claims. It also does not cover things that would be covered by other insurance policies, such as flood or fire damage, theft, or maintenance issues on the home.

Is title insurance mandatory?

Amazingly, the answer is no. You can buy a home in Ontario without taking out title insurance, however we strongly advise all purchasers to go for it. 

First, title insurance buys you peace of mind during the closing process. There are a lot of moving pieces as your property is closing, when funds are coming in and your lawyer is changing the land registry to ensure that you have title. If there are any problems that happen during that stage of the title process, title insurance can protect you. 

Title insurance also protects against what you don’t know. Could you imagine learning after purchase that the previous owner had a mortgage on the property that was never disclosed to you, and you’re now on the hook for that amount of money? That could add tens of thousands of dollars to your purchase price or more, and title insurance will protect against this. 

The cost of title insurance is minimal. Its a one-time payment based on your purchase price and your mortgage. This means that for an extra few hundred dollars (truly a drop in the bucket considering most home prices), you can be well protected. 

Should I be worried about title fraud? 

It may seem like something out of a movie, but title fraud is a serious concern that happens regularly. We think that if someone is going to steal our identity they’ll likely try to commit some sort of financial fraud on our accounts, by draining our funds or making phony purchases on our credit cards.

But what if a fraudster decides to commit fraud against your home? Using your identity, they go to apply for another mortgage on your home, and because they’ve stolen your identity they’re able to get past a lender who does not have good fraud protection. Fraudsters can also move to sell your home out from under you – imagine coming home to find your property has become an unexpected open house!

Identity fraud detection is getting better, but real estate fraud is still a very real risk, and it’s why real estate lawyers need to carry such high insurance for themselves! While the legal world is taking effort to stop fraudsters, the best thing you can do as a property owner is to make sure that you’re protected with title insurance.

Where can I get title insurance?

There are a few commonly-used title insurance providers in Canada, such as Stewart Title Guaranty Company, TitlePLUS, and Chicago Title among others. These insurers are in the title insurance business, and they know their product inside and out to ensure that you’re properly covered.

When we work with real estate buyers, we walk them through the title insurance process and explain how it works. We care about our clients, and we always want them to have the best protections possible. Contact our office today to get our help with your real estate purchase or sale.