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Your clients have found their dream home and are in the process of closing the deal—how can you keep them protected? Here are some of the most frequent questions you might get from clients looking to better understand residential title insurance:
What is title insurance?
Title insurance is a type of indemnity insurance policy that protects the holder against losses from issues around a property’s ownership—its title. Title insurance is available for residential and commercial property owners (owner policies), as well as for lenders (loan policies). This article covers residential title insurance.
Title insurance is usually purchased as part of closing on a property, and can provide protection if there are delays in the property’s title registration. Property owners who didn’t close using title insurance can still purchase a policy later.
Own your home but don’t have title insurance? Sign up for an existing homeowner’s policy.
Is title insurance worth it?
Yes, title insurance is always a worthwhile investment. For a low upfront cost, it can cover potentially massive losses. A title insurance policy covers costly and unpredictable risks, and in some scenarios is the only recourse you and your clients may have. It’s important to have that protection in place. It also helps cut down on further off-title searches as part of closing on the deal, which helps offset the cost of the policy.
What does title insurance protect against?
Title insurance indemnifies against losses from three types of issues: title, off-title and transactional. Title insurance coverage varies from province to province. You can always check with your provider to make sure you understand where your clients are and aren’t covered.
Title issues
Problems with the clear ownership of a property. When your client later tries to sell, a defective title can make it impossible to legally transfer ownership of the property until it’s resolved.
- Encumbrance: a title defect where someone other than the owner has a claim to all or part of the property.
- Lien: an outside claim against the title of a property to secure or collect on a debt. A mortgage is the most common lien on a property. Tax liens and builders’ liens can cause significant losses for new homeowners, since liens stay with the property itself.
Off-title issues
Issues that cannot be seen from review of the title. They often revolve around how the property can be used, or who has access to it.
- Encroachments: when an improvement on a property crosses into someone else’s land.
- Easement: a common type of encroachment risk. An easement is an agreement to let someone use part of the owner’s property without owning it. If an improvement on your client’s property encroaches onto an easement, they could be forced to remove it.
- Unpermitted work by a previous owner: if a municipality finds that work on a residential property was done without a permit, the current owner can be forced to complete the work with proper permits or to remove the structure that was built without the permit.
- Zoning issues: land being used in a way that breaks zoning by-laws. Municipalities can force expensive changes or even demolitions to bring properties into compliance.
Transactional issues
Problems with the transfer of a title. They include procedural risks, like lack of corporate authority, but the main transactional risk is fraud.
- Title fraud: someone steals your client’s identity to get a mortgage on your property in their name. That fraudulent mortgage can keep them from selling or remortgaging the property, and getting their title back can cost your client tens of thousands in investigative and legal fees.
- Transfer fraud: a variant of title fraud where someone steals your client’s identity to sell their property to someone else. The fraudster often gains property access via short or long-term rental, and uses that access to show the property to prospective buyers. The innocent buyer is left on the hook for the mortgage, while the fraudster disappears with the proceeds.
How can title insurance protect against fraud?
As more stories of title fraud and its consequences break in the media, industry players and news outlets are urging homebuyers to get title insurance as it’s the best and most affordable protection against fraud.
Why purchase title insurance? It comes down to two reasons, each tied to one of the two main types of title fraud:
- If your client’s title is stolen for a conventional title fraud scheme, they won’t be able to take more equity out of their home or even sell it until that title is restored. That can cost tens of thousands in legal fees. The duty to defend included in their owner’s title insurance policy covers all the costs of getting your client’s title restored.
- If your client buys a property with a stolen title from the fraudsters, they’ll be out the entire amount of the mortgage. Since they won’t actually own the property, the only way they can recoup their loss is if they had an owner’s title insurance policy in place when they bought the property.
How much is title insurance?
Title insurance uses a one-time premium, not a monthly or annual premium like most other types of insurance. The amount will depend on the purchase price and location of the property, about $150–$800.
Premiums can vary by provider, but so can coverage. Many insurance companies focus their claims process on finding reasons to deny claims—FCT’s policy is to look for the best way to make our insureds whole.
Do I need title insurance for a condo?
Absolutely. A condo unit still has a title, and is vulnerable to fraud. Some risks, such as survey issues, are less likely than in a freestanding home, but other risks are actually worse in a condo.
- Condo corporations can issue mandatory fees called special assessments (also called special levies) to cover shared expenses like repairs. An improperly communicated special assessment can be a nasty surprise waiting for new owners when they take possession, and could cost thousands.
- The title to a condo may include elements outside the unit itself, like a storage locker or a parking spot. Not every condo title includes these elements. But if it does, and the owner loses access to something included in the title, title insurance could be your only option to resolve the issue—if they already have an owner policy.
Is title insurance mandatory?
Title insurance isn’t required by law, but every client needs it to keep their investment properly protected. Title risks are expensive and often impossible to see coming. For example, if the property your client is closing on is being sold to them fraudulently, they’ll be on the hook for the full mortgage with no home to show for it.
Title risks affect more than just the homebuyer. Title insurance is often the only way to make your client whole if they suffer a loss from a covered risk—without it, clients may be forced to take action against the legal professional who closed the deal, in order to recover some of their losses.
How long is title insurance good for?
Title insurance coverage lasts different lengths of time depending on the type and provider. With most insurers, the policy provides coverage for as long as the insured retains an interest in the property.
Residential owner’s title insurance from FCT lasts forever, so your clients can still be covered for issues that come up after they sell. Residential title insurance from most providers, including FCT, is transferrable to the insured’s heirs if they inherit the property, as well as spouses and children, if the insured transfers the property to them.
Title insurance from FCT carries the additional benefit to legal professionals of legal services coverage. Options include:
- complimentary coverage for deductibles and any premium increases as a result of you needing to make a claim to your mandatory E&O insurance,
- A Deal Protection Endorsement able to cover E&O claims up to the limit of the title insurance policy itself,
- Direct coverage from FCT to direct claim coverage on issues up to $10,000, even without the issue having resulted in legal action.
Property ownership can come with expensive risks, but it doesn’t have to. FCT can help you protect your clients against title fraud, no matter how long they’ve owned their home. Order them an existing homeowner’s policy online, or simply direct them to the sign-up page and get them coverage for life.
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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