Do you need title insurance for a new-build home?
Jul 21st, 2022 | By FCT
The housing supply shortage is one of the top issues in Canada’s real estate market. To address it, cities like Calgary are seeing a massive boom in new-build housing.
New construction offers many advantages, like more energy-efficient heating and cooling systems. Their titles can also feel less risky to transfer. After all, if the land was previously vacant, there’s no chance of unpermitted work from a previous owner causing losses for new buyers.
But did you know that new builds carry most of the same title and off-title risks as existing homes? Here’s why.
The home may be new, but the land isn’t
Even unimproved land belongs to someone. The land for the new construction may have changed hands several times before the developer bought it. Every transfer of the land can add defects to the title. Those defects can cause losses for the people who buy homes built on that land. On top of that, both the municipality and the developer might make a mistake or miscommunicate, which can end up causing a problem with the property.
Here are just some of the issues that can cause losses for owners, even on new constructions:
- Zoning mistakes, which can happen on either the municipality or the developer side.
- Setback agreements the developer didn’t know about, which results in homes built too close to the road.
- Pre-existing liens, for example from property tax still owed by the previous owner.
- Errors in the registration of the title.
- Pending legal action against the property that the developer didn’t know about.
- Builders’ liens, if the developer wasn’t able to fully pay a supplier or contractor.
Subdivisions can add extra complications
When an owner buys a property in a subdivision, they’re getting the title to that specific property. But all the land in that subdivision would have been under one original title before it was parceled out. The problem is, if someone has a claim against that original title, every property in the subdivision could be subject to it.
If the land for the subdivision was assembled from existing properties, that can add complications to the title of the assembled land. Those issues can then impact the new properties parceled out of that assembled land.
The developer could also make mistakes setting the property lines in a subdivision. If that happens, or if there are issues with the Real Property Reports/surveys conducted for any of the properties, the owners of those properties could have to deal with the consequences down the road.
How can title insurance help Alberta’s new housing starts?
Title insurance is a great solution for new construction because it can cover homebuyers for the risks associated with all properties, risks introduced by subdividing land, and even title fraud. A title insurance policy protects the insured for as long as they have an interest in the property. It also works as a better closing solution than Western Conveyancing Protocol alone, or gap-only insurance.
Builders help with some of the risks of new construction by issuing a Real Property Report to the owner. It’s a useful document, but it has a limited scope and doesn’t offer owners any recourse if an issue comes up. It also becomes obsolete if an owner puts up a new exterior structure, like a fence or a deck. A title insurance policy covers the outside elements of a property as well as the home itself, which means it still provides protection to future buyers if the current owner adds structures.
Post construction endorsement
FCT offers more protection on new construction with our Post Construction Endorsement. It advances the policy date by one year for 14 covered risks, including encroachments, work orders and zoning bylaw violations.
That means the policy covers any later improvements to the property the developer had contracted for before the closing date. Owners can take possession of their new-build home knowing that FCT is here to help handle surprises down the road.
Enjoy more protection for new-build home purchases with a residential title insurance policy from FCT.
Insurance by FCT Insurance Company Ltd. Services by First Canadian Title Company Limited. The services company does not provide insurance products. This material is intended to provide general information only. For specific coverage and exclusions, refer to the applicable policy. Copies are available upon request. Some products/services may vary by province. Prices and products/services offered are subject to change without notice.
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