Understanding Title Insurance in Canada

When purchasing a home, your Canadian mortgage lender will typically require title insurance. This is a one-time cost that is part of your closing costs. Title insurance will protect your lender in the event there are outstanding claims on your new property. Continue reading to learn what title insurance covers, how much it costs and whether you should buy the optional owner’s policy.

What does "title" mean?

Title is a term used by attorneys to refer to the right of ownership over land. When you buy a house, you receive the title to that property. The title is then filed in the government's land registration system.

However, the full title is not transferred in some instances as another party has partial ownership of your new land. This could be due to previously unpaid property taxes, a defect in the land registration system, or a variety of other reasons. These events tend to be a surprise as their ownership stake is not listed on a central land registration system.

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What is title insurance?

As stated previously, title insurance protects you if a third party has an unexpected lien, easement, or claim on your land. Some common examples include:

• Liens: A contractor, tax authority, or lender who hasn't been paid can link a lien to the property. You don't want to be stuck paying the previous owner's outstanding invoices.

• Errors: There could be errors in your title, such as if the title was improperly registered or an issue with the public records for the property. Examples could include a previous owner that hasn't been discharged from the title or spelling mistakes that grant the title to someone else.

• Title Defects: These are issues that can affect your property ownership that was not known beforehand at purchase. For example, there might be easements that were not documented or boundary disputes with your neighbours resulting in encroachment. Perhaps there are even issues with zoning by-laws that have been unaddressed by the previous owner that could affect your use of your property.

• Fraud: Title fraud can include someone impersonating the owner of the property or forged documents. It also protects someone stealing your title and then selling the home or getting a mortgage to receive money from it.

Title insurance is protection that prevents you from having to pay the other party's claim on your land. Title insurance will also shield you against fees associated with the legal costs of proving your title or contesting another party’s partial interest in your property.

What title insurance covers

The two types of title insurance protect different parties.

• Lender’s Policy: This is the mandatory policy that all lenders require homebuyers to purchase. Although this policy only protects the lender, a title search is completed. The title search should find any other ownership claims.

• Owner’s Policy: For as long as the property is owned, this policy protects the buyer from title-related losses stated in the insurance coverage.

Both the Lender's and owner's policy should protect against:

• Existing property title liens (unpaid debts from previous owner, mortgages, or taxes secured against the property)
• Previously unknown title defects (issues that prevent complete ownership of the property)
• Neighbour encroachment issues (needing to remove a building because it's on your neighbours land)
• Title fraud
• Survey and public records errors
• Additional title related issues

Your title insurance policy will cover you as long as you own your property, and it will endure losses up to the maximum coverage provided in the policy. It may also cover most legal charges involved in restoring the title of your home.

Title insurance exclusions

Although the insurance covers many things, there are some title-related exclusions to be aware of. Your policy may not cover:

• Title defects that are known before purchasing the policy
• First Nations land claims
• Claims not listed on public records (this is important to verify)
• Loss of property due to non-payment of mortgage

Although these are standard exclusions, you'll need to carefully review your policy to see everything not covered.

Non-title related exclusions

Title insurance is not a home insurance policy. It will not protect you from non-title-related issues. In general, your title insurance will not provide compensation for:

• General home wear and tear
• Flood damage, fire, or sewage backup
• Burglary
• Additional non-title losses and damages

Make sure to read your title insurance policy for a complete list of exclusions, restrictions, and terms and conditions.

How to Buy Title Insurance?

In general, you must buy a lender's title insurance policy upon completing your property purchase agreement. Occasionally, an owner's policy is required at closing to ensure everyone is protected, but this is typically optional. Owners can also purchase protection at any time - even after owning the property for multiple years.

Although title insurance costs range between $200 - $500, prices vary based on various factors. The value of your home, insurance provider and province you live in will all affect the cost of your one-time fee.

Major title insurance companies in Canada

To learn more about the cost of title insurance for your property, you can receive a quote from the following companies. According to RBC, the major recognized title insurance companies are shown on the following list.

Tips when purchasing title insurance

Purchasing title insurance can be overwhelming. Make sure to follow these tips for the best results.

• Insure your total property value
• Your policy date activates on your property closing date (if not buying on a later date).
• Carefully review your policy to make sure property details are correct
• Understand the title-related losses your policy covers and does not cover

Title insurance policies tend to contain lots of legal terminology that is difficult to understand. It's best to talk with your lawyer or insurance provider to clarify any questions you have.

Also, keep in mind that you are the client and can select any title insurance firm that best suits your requirements.

How to use title insurance

If you are in a scenario that requires you to use your title insurance policy, follow these steps for the best results:

1. Double-check your insurance policy: to ensure that your coverage covers the title-related issue. Unless your insurance policy specifically covers it, your insurer will not reimburse you for a problem not mentioned in the policy.
2. File your claim as soon as possible: You can either review your policy or ask your insurance provider to learn how quickly you must submit a claim.
3. Make your claim in writing: Write an email or letter to the title insurance company and explain the losses you have incurred due to a title-related issue. Include your policy number, contact information, and any relevant documents.
4. Store a copy of your claim for future reference: Once the title insurance firm has received your claim, it will be evaluated to see whether you qualify for coverage under your policy. The title insurance company will then contact you to let you know that the claim was received. You should receive a response about your case within a reasonable amount of time.

Benefits of title insurance

Title insurance is not a legal requirement in Canada. However, your mortgage lender may require you to purchase title insurance to obtain a mortgage with them. Title insurance also comes with a host of benefits, including:

1. Peace of Mind: Issues and defects might only be spotted years after you have already purchased the home. With title insurance, you won’t have to worry about your homeownership status, and you don’t need to worry about past debts from the previous owner coming back to haunt you.
2. Survey Coverage: With title insurance, you might not need to have a land survey conducted or provide your lender with a Real Property Report in the case of Alberta.
3. Savings: Your real estate lawyer won’t need to check the property’s title since that is already done through your title insurance. This saves your lawyer time and saves you money.

Title insurance in Ontario

In Ontario, all insurance companies are licensed and overseen by the Financial Services Commission of Ontario (FSCO). Most mortgage lenders will require homebuyers to purchase lender's title insurance.

Although buyer's title insurance is not mandatory in Ontario, real estate lawyers are required to advise their clients of the policy as an option to purchase.

Title insurance in Quebec

The Autorité des Marchés Financiers (AMF) regulates the financial industry in Quebec. While owner's title insurance is not mandatory in Quebec, most lenders will require lender's title insurance to protect themselves.

Title insurance in British Columbia

The BC Financial Services Authority (BCFSA) oversees the province's financial system. Similar to Ontario and Quebec, most mortgage lenders will require the purchase of lender's title insurance.

However, unlike Ontario, lawyers in BC are not mandated to advise clients on buyer's title insurance.

Title insurance in Alberta

The Alberta Superintendent of Insurance regulates the insurance sector. While your lender may require title insurance in Alberta, the province does not mandate it.

Additionally, lawyers are not required to discuss buyer's title insurance options with clients. As a result, many Alberta homeowners are unaware of the options available to them.

The bottom line

Overall, title insurance is a vital part of the property buying process. By following the tips provided in this article, you can ensure that you are fully protected in the event of any title-related losses.

Frequently Asked Questions

When do you usually purchase residential title insurance?

You'll most likely need to buy residential lender's title insurance when you acquire your house. However, you can purchase buyer's title insurance at any time after the closing. It's worth noting that title insurance for existing homeowners is somewhat different from the type taken out when purchasing a home.

How much does title insurance cost?

Title insurance for individual residences varies in price based on the value of your property and the title insurance company you choose. However, the one-time payment typically costs between $200-$500.

How long does the coverage last?

Residential title insurance covers you while you own the property. Additionally, most policies extend coverage to your heirs, spouse, or children if they inherit the house under certain conditions.

Where to purchase title insurance?

You can buy title insurance from one of the major Canadian title insurance companies listed above. Additionally, you can work with a lawyer or insurance broker.