How does real estate title insurance work in Ontario?
Updated: Mar 25, 2020
One of the most common questions I receive from a client pertains to whether or not they should purchase Title Insurance. In many instances, lenders often require the purchase of a Lender's Title Insurance Policy, which protects their interest in the property. If you are thinking about acquiring a Homeowner’s Title Insurance Policy as well but are not sure what exactly title insurance is, or what it would protect you from, check out this brief tutorial.
What is title insurance?
Title insurance is a form of insurance used to insure a buyer (Owner’s Policy) and their lender (Lender’s Policy) against loss or damage due to title defects. The word “title” is a legal term used to describe legal ownership of a property and the phrase “title defect” is a legal phrase used to describe anything registered on title that doesn't give the owner clear title to the property. “Clear title” simply means there are no liens, writs, or notices of security interest (or certificates of pending litigation) as a result of prior owners on the title documents. Title defects make it harder for owners of a property to utilize the equity in their property and even sell the property.
You may be wondering why these title defects aren’t detected by your real estate lawyer prior to your purchase of the property. In some cases, liens, writs and even notices can be registered post-closing and would not be apparent to your lawyer while they did their search of title.
Do I have to get title insurance?
While title insurance is not mandatory in Ontario, real estate lawyers must advise their clients of it as an option to purchase. Title insurance is intended to protect homeowners and minimize their risk in real estate transactions, whether that be a purchase or refinancing. Title insurance is a popular option for many people because it only requires a one-time payment (called a “premium”) and its coverage lasts for as long as you own the property. In fact, the coverage may even extend to an individual’s heirs when they inherit the property through a will provided the individuals meet the requirements.
If you own a property and did not acquire title insurance at time of purchase, you are still able to purchase a policy.
What does title insurance typically cover?
Survey issues – A survey is used to establish the legal boundaries of a property. If a property does not have an accurate survey, a purchaser may face all sorts of problems including their neighbour encroaching on their property. This could be by way of a fence built on what they thought was their property line or even a paved driveway.
Title fraud – Title fraud can occur in a number of ways but most often occurs when a fraudster forges documents or uses stolen personal information to transfer a property’s title, without the owner’s knowledge, to themselves or someone they know in order to register a mortgage on the property. The fraudster, with a full bank account, then leaves the area or country and the property owner is left owing a mortgage placed fraudulently on the property.
Legal use of a property or zoning problems – A property may have restrictions on its use. For example, a multi-unit residential property may be allowed to be used only for residential purposes and not retail purposes although it has been used for it in the past.
Public record errors – Currently, our government uses the Land Titles System, which allows for the electronic registration of title. Prior to Land Titles, we had the Land Registry which was governed by paper and people could attend at a registry office to register documents on title. This was not ideal as fraudulent conveyances were abundant. In 1999, the government began to convert these paper title documents to the Land Titles System. This was a task that required the assistance of conveyancers (most new to the profession) and unfortunately, errors occurred. If you purchase a property and there is a public record error, you will be protected by title insurance.
Encroachment issues – Encroachment is a term used in real estate law to describe a situation where a person who does not own a piece of land builds a structure over or extending into your property. This can be an extension to a home or the construction of an in-ground pool.
Legal coverage – If a problem with title is discovered after purchasing a property, a title insurance company may pay for legal expenses incurred in defending the property’s title.
What does title insurance typically not cover?
While title insurance mitigates risk to a purchaser for title related defects, it is important to remember that it is not a home insurance policy for the contents of the home, nor is it a home
warranty policy. Some of the exclusions include:
Title defects that were known to the purchaser prior to the purchase;
Land claims by Indigenous people;
Environmental contamination (such as soil contamination);
Water quantity or potability;
Multi-unit residential properties;
Future use considerations; and
Misrepresentations by vendors.
What if I don’t want title insurance?
As noted above, title insurance is not mandatory in Ontario and a purchaser may opt to purchase a “Solicitor’s Opinion” concerning title. The phrase “Solicitor’s Opinion” is used to describe a lawyer’s legal opinion on the marketability and validity of a property’s title after having conducted a full title search. A full title search would often include:
Ordering a Survey, if one is not already in the owner’s possession;
Title searches, which include the pulling and review of:
a. easement agreements;
b. right of way agreements;
c. restrictive covenants;
d. site plan control agreements;
e. development agreements;
f. subdivision agreements;
g. municipal by-laws;
h. registered leases; and
i. liens; and
3. Off-title searches such as:
a. contacting municipal government for water and tax certificates
b. contacting municipal government to confirm zoning is correct and there are no work
orders (either from the government or utility providers); and
c. contacting the local fire department to ensure there are no issues with fire safety.
A Solicitor’s Opinion is often “qualified” by the accuracy of the records and responses your real estate lawyer receives from his or her searches. Your real estate lawyer will write his opinion on title, but qualify it against what is known as at registration and the correctness of the documents provided to him or her. Consequently, if a real estate lawyer receives records which have a mistake, the purchaser may be out of luck. In fact, a key difference between a Solicitor’s Opinion and title insurance becomes clear when there is any issue with title. If a purchaser has title insurance and there is an issue with title, the insurer will provide coverage as set out in the specific policy. On the other hand, if a purchaser is relying on a Solicitor’s Opinion, the purchaser’s recourse is to bring a negligence action in the court system against the solicitor who provides the opinion.
For a one time premium, which is not expensive in the greater scheme of a transaction or home ownership, title insurance provides greater protection and security for homeowners. A full title search is cumbersome. You will be paying for the lawyer's time and also, potentially, a new survey which can easily cost over a thousand dollars.
I want title insurance! How do I get it?
To get title insurance, all you have to do is tell your real estate lawyer. KPA uses Stewart Title and First Canadian Title as insurers. To find out how much title insurance will cost you through KPA, compare quotes by Stewart Title and First Canadian Title.
Please note that the above information is meant to be information and does not constitute legal advice. Every situation is different. If you need advice about your specific circumstances, please contact our offices via telephone.
The author wishes to thank Priya Patel (Articling Student) for her assistance with this article.