Whether you are purchasing a family home or an investment property, it is paramount that you acquire the property with “clear title”. The word “title” is a legal term that refers to one’s legal ownership of property. In real estate transactions, the lawyer is responsible for reviewing title and ensuring that there are no adverse claims to the property being purchased.
Title insurance is a product routinely used by lawyers in residential and commercial real estate transactions. It is an insurance policy that protects purchasers and lenders against losses related to the property’s title or ownership. Title insurance is not a home warranty or home insurance. It does not provide protection for or compensate against non-title issues, such as property damage or theft.
Title insurance protects against losses from issues such as:
Unknown title defects
Third parties claiming an interest in the property
Existing liens against the property’s title
Encroachments onto or from abutting properties
Outstanding work orders
Errors in surveys and public records
Another benefit of title insurance is that coverage lasts as long as you own the property. Many policies also provide extended coverage to heirs through a will, to a spouse in the event of a divorce, or to children when property is being transferred from parents to children for nominal consideration.
The coverage, exclusions, and cost of title insurance can vary. It is important to carefully review your title insurance options with your real estate lawyer. In general, the following are items that are excluded from title insurance coverage:
Defects in title known before closing
Prior to the introduction of title insurance, lawyers were required to provide an opinion of title. Notwithstanding, a lawyers due diligence may not discover errors in government records, undisclosed claims or fraud. Title insurance provides protection against these unknown issues. It is not meant to replace or act as a substitute for a lawyer’s opinion of title; rather, it is complimentary and provides additional coverage and comfort to purchasers of real property.
Lawyers in Ontario have a professional obligation to advise their clients that title insurance is not mandatory in Ontario, and to discuss the advantages, conditions and limitations of each respective product. Most lawyers will insist that their clients purchase title insurance due to the cost of a lawyer providing an opinion of title, and the added benefits and coverage of the insurance policy.