Your top title insurance questions, answered
Jul 22nd, 2021 | By FCT
Title insurance can easily seem like another unnecessary add-on to the already complicated and costly process of buying a house, but nothing could be further from the truth. It can help speed up the process of closing on your new home, while protecting you and your heirs against a variety of unforeseen and expensive risks. It offers cost-effective, long-term, powerful protection, but there’s a great deal to know about it.
Your notary or lawyer is a fantastic resource to learn about this vital protection for you as a homeowner—we’ve compiled some of the most frequently asked questions they receive:
What is title insurance?
Title insurance is insurance that protects against losses from defects in your title—the legal ownership of your property. These defects can include issues with the property survey, the registration of your land title and problems you didn’t know you inherited from a previous owner, like back taxes or improper renovations. Title defects are unpredictable and expensive, but title insurance lets homeowners protect themselves.
Are title insurance and home insurance the same thing?
It’s common to confuse home insurance with title insurance, or to assume because you have home insurance, you’re fully protected. But they cover completely separate risks, and even their premiums work differently.
Home insurance deals with your home’s physical structure, and the items inside it. Title insurance deals with your legal ownership of the property, even if it’s an empty lot. Home insurance covers potential future physical damage to the home, or losses to replace stolen insured items. Title insurance covers (apart from future fraud) losses from issues that already existed, but that you didn’t know about.
Here’s a classic example of the difference:
- Are you out money because your shed flooded or got broken into? You may be covered by home insurance.
- Are you out money because the shed turned out to be on your neighbour’s land (a mistake by the surveyor) and you had to move it? That may be a title insurance claim.
What does title insurance cover?
Most title insurance policies covers losses from problems that already exist but that you don’t know about.
- If the survey for your property wasn’t done correctly, you won’t know until you’re forced to move the shed you unwittingly built on your neighbour’s land.
- If the previous owner of your home did renovations without a permit, you won’t know until the city forces you to bring your home up to code.
- If the previous owner left taxes on the property unpaid, or there were taxes that weren’t addressed or correctly levied on the property when the deal closed, you won’t know until the government comes looking for those back taxes.
Title insurance may cover your losses in each of these scenarios, and many more. Another notable point of coverage is title fraud—a thief using your identity to borrow money against your home, or even sell it out from under you.
What doesn’t title insurance cover?
It’s important to remember title insurance coverage often depends on whether or not an issue was known about when you bought the policy. While you can always get owner’s title insurance at any time, it’s best to get your policy as you’re buying the house. That way, any issues you learn about afterward can fall under its umbrella—coverage almost never applies to title defects you knew about before getting the policy. There are some instances where title insurance can still protect you from a known title defect, but it’s important to ask your lawyer or notary.
Title insurance covers the legal existence of your property, not the property itself. The losses it covers will often originate from something physical—moving a shed, bringing your home up to code—but the coverage comes from the title defect that led you to be responsible for the cost, not the issue that incurred the cost.
Here’s a quick example: A couple finds a leak in their roof and has to pay to have it repaired, as well as fixing the water damage the leak caused before it was discovered. Does title insurance apply?
- It can, if the previous owner had done work involving that roof without a permit. The covered risk is from the previous owner’s lack of a permit, not the possibility the roof might leak.
- If the previous work had a permit, or if the old owner never did work on the roof, title insurance unfortunately can’t cover the losses from repairing it.
The most common coverage confusion we see comes from this perceived grey area between home and title insurance. Just because the builder or previous owner did a shoddy job doesn’t always mean title insurance can cover the losses. When the government makes you bring a previous owner’s build up to code, always verify if the work was properly permitted—if it wasn’t, your next call should be to your title insurer to make a claim.
If your neighbor makes a claim against you, for instance alleging your new garage extension encroaches on their property, the issue title insurance checks for is the property survey, not the garage itself.
Is title insurance part of Western Protocol?
Western Conveyancing Protocol (also called WCP or the Protocol) is a system the law societies in the Western provinces created to help close real estate deals faster. A Protocol closing lets the deal “close” on the closing date, even though the land title registration hasn’t happened yet. The seller can get their money and the buyer can move in without waiting weeks for the title registry.
Title insurance is separate from WCP. It offers all of the same benefits—fast closing, registration gap coverage—with much more protection for the buyer. More notaries and lawyers are relying on title insurance to cover the gaps in WCP coverage and make sure you’re properly protected, especially in hotter markets like Vancouver or Calgary.
What is duty to defend?
In title insurance, duty to defend is the requirement that the insurer cover not just their insured’s losses, but any legal fees associated with the case. In Canada, the standard is that duty to defend applies if there is a possibility of a claim succeeding.
This clause shows up in all FCT title insurance policies and means the policy also covers legal fees involved in defending your title. There is no dollar limit to this coverage, and it does not reduce the insurance coverage going forward.
B.C.’s duty to defend standards are notably higher than Ontario’s, allowing outside evidence to play a part in determining whether the duty applies. In Alberta, a blanket duty to defend applies until the cause of an incident—and through that, the type of coverage invoked—is determined.
Title fraud is a great example of where the duty to defend clause shines in protecting policy holders. Beyond the damage to your credit score and ability to leverage equity in your home, title fraud is notoriously expensive to resolve legally. It’s not uncommon for legal fees in the tens of thousands to restore ownership of a title—sometimes more, in cases where the victim’s home has been sold and the (innocent) buyer is intent on protecting their purchase.
Duty to defend kicks in when you incur legal fees as part of resolving an issue where the risk is covered under the policy. In short: if the policy covers you in a particular situation, it also covers the legal fees involved with resolving it.
Is title insurance mandatory?
Yes and no. There are two types of title insurance policies: one that protects the lender and one that protects the property owner—you. The law doesn’t make either mandatory, but most lenders will require you to buy the lender policy as part of securing your mortgage from them. The owner policy is optional, so it’s important to make sure your notary or lawyer includes an owner’s policy as well when you close on your home.
One more huge point in favour of an owner policy is that it lasts as long as your title does. If you refinance your mortgage with a different lender, they’ll get you to buy a new lender policy, but you’ll never need to buy a new owner policy on the same property—you’re still covered. Always make sure when you’re discussing with your notary or lawyer that you’re talking about an owner’s title insurance policy, and never be afraid to ask questions about it coverage.
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.