What’s not covered by title insurance?

Jen and Henry* saved up for years and finally bought a house, but it needed a little work. To save money, they decided to do the renovations themselves. While demolishing walls, they discovered mould in the guest bathroom. Jen was distraught at the thought of spending more money to fix the issue, but Henry wasn’t. “It’s not a problem,” Henry said. “We’ve got title insurance!”

Unfortunately, like many people, Henry had misunderstood what title insurance covers. If the previous owner had done some work on the guest bathroom without getting a permit, and the municipality had found out, it would have been a different story.

Does title insurance cover unpermitted work?

It can. But the key here is that title insurance doesn’t cover the property damage itself. Instead, it covers losses from a municipal authority requiring the removal or repair of property elements that a previous owner had built without a permit. It may also provide compensation for loss of property value from the compliance work

This sometimes causes confusion, since new owners often learn of the unpermitted work when it leads to some damage to their property. Title insurance can provide coverage, even if there is no damage.

Homeowners insurance vs. title insurance

Homeowners insurance, or home insurance, is often confused with title insurance. They both deal with protecting a property, but in very different ways.

We often get claim requests that are more suited to home insurance. For example, Michelle and Jake*, title insured homeowners, noticed that the carpet in their basement was wet, and found water coming in from the side of the house. This was caused by a crack in the foundation wall. But because this had nothing to do with unpermitted work from the previous owner, there was no compliance order for us to cover.

Did you know there are two types of title insurance?

Sometimes, homeowners suffer losses from a covered risk, but don’t actually have the title insurance they think they do. There are two types of title insurance policies: lender (or loan) policies, and homeowner (or owner) policies. Understanding the differences between the two is important to making sure you’re properly protected.

Many lenders require that homebuyers purchase a loan policy as an automatic part of securing a mortgage. Loan policies provide coverage for the lender on a mortgage. They help protect against risks lenders face, like tax liens. Loan policies also help the closing process go more smoothly, which helps both lenders and borrowers.

Homeowner policies are what people usually mean when they say “title insurance.” They provide coverage from the risks faced by homeowners, like the unpermitted work coverage mentioned above, encroachment issues, encumbrances and more.

Loan policies are often mandatory when buying a home, but owner policies are optional. A homeowner may think they’re properly covered because they see title insurance in their closing documents, when it’s just the loan policy.

If you didn’t get an owner policy when you bought your property, it’s not too late. You can still get protected with a residential title insurance policy from FCT.

*Names were used for illustrative purposes and have been changed to protect the privacy of our clients.

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.

®Registered Trademark of First American Financial Corporation.