Title insurance protects both the mortgage lender and property owner from losses related to a real estate transaction. But is this additional cost really necessary and, more importantly, worth it?
Buying property is one of the most important — and expensive — investments you can make. Unfortunately, that means that any mistakes during the transfer of ownership can be quite costly as well. Title insurance can help you avoid the financial consequences of these mistakes and reassure you that you have a clean title.
Keep reading to learn more about this type of insurance, what it covers, how much it costs, and what you can do to avoid becoming a victim of title fraud.
What Is Title Insurance?
Title insurance offers protection against financial loss if issues with ownership are discovered after buying or refinancing a property. There are two main types of title insurance policies for commercial and residential properties:
Once you’re approved for title insurance, you’re assured that you have a clean title. Or, if the title does have liabilities that were overlooked during the title search, your title insurance company will assume any and all risk.
Do You Need Title Insurance in Ontario?
Title insurance, like home insurance, is not legally required in Ontario and the rest of Canada. That said, lenders may require you to buy lender’s title insurance before they’ll approve you for a loan.
Even if it’s not required, an owner’s policy can be just as imperative. The financial consequences of not having a policy can be dire, as the new owner will be responsible for any back taxes, liens, and zoning violations on the property. It can also leave you vulnerable to fraud, which is more common than you think — there’s one attempted title fraud every four business days.
Additionally, getting a policy involves a title search, which can help you spot potential property issues before they escalate. A clean title is necessary to complete a real estate transaction. If problems are discovered during the title search, you can opt out of the purchase or require the seller to rectify them. And if there are any challenges to the title after you close the sale, the company that insured you will take care of it.
If you’re still unsure whether you need title insurance, consult a real estate lawyer or insurance agent/broker. They’ll assess whether a title insurance policy is right for your situation and, if not, suggest alternatives.
What Does Title Insurance Cover in Ontario?
A basic title insurance policy covers any title issues that can affect your ability to mortgage, lease, or sell the property in the future. Depending on the kind of coverage you get, this could include:
- Forgeries and fraud regarding title documents
- Typographical or clerical errors in the property description or other documentation
- Outstanding debts from previous owners (e.g., unpaid utilities, taxes, mortgage balance, maintenance fees)
- Claims of ownership by other undisclosed parties, such as heirs
- Property ownership disputes due to property/construction liens, such as from unpaid contractor bills
- Zoning violations and alterations that are required to comply with regulations
- Encroachment issues, including the removal of structures on non-owned land
- Easements/rights-of-way, which grant usage of the property without ownership
- The gap between closing the sale and officially registering the property transfer with the government
- Legal expenses related to defending the property title in future disputes
- With extended coverage, identity theft
In some cases, a lender may accept title insurance in lieu of a survey or Real Property Report (RPR), a typical requirement of getting a mortgage. However, if a survey would have uncovered potential issues prior to purchasing a property, a title insurer may deny claims related to those issues due to negligence.
Likewise, standard title insurance does NOT cover:
- The physical condition of the property, including damage due to water leaks, fire, mould, and wear and tear
- Paying more than the appraised value of the home
- Issues that were known to the buyer before purchasing
- Issues related to a new property inspection or survey
- Issues that are not in public records, like unlisted liens
- Foreclosure due to non-payment of mortgage
- Native land claims
- Environmental hazards, such as soil contamination
- Burglary and theft
- Property loss due to surveyor errors
- Trees, fences, and boundary walls outside of property lines
- Zoning violations due to renovations you’re responsible for
You may be able to get coverage for some of these with an extended title insurance policy. Ask your lawyer or insurer for an itemized breakdown of potential inclusions and exclusions.
How Much Does Title Insurance Cost?
Title insurance in Ontario costs, on average, $200-500, depending on coverage, property value, and your chosen insurer. This one-time fee covers the title search, notarization fees, and other taxes.
You can pay for title insurance through your real estate attorney when closing the sale, but you can also purchase it any time after. Traditionally, the buyer covers the lender’s policy while the seller pays for the new owner’s policy. However, who pays for what insurance can be a point of negotiation.
For example, either the buyer or seller can offer to cover both policies to simplify the transaction. You might also be able to get discounts if you get both the owner’s and lender’s policies at the same time from the same title insurance company.
Where to Buy Title Insurance in Ontario
The top title insurers in Canada include:
- Stewart Title
- First Canadian Title
- Chicago Title
- Travellers
- TitlePLUS
You can get title insurance through recommendations from your real estate lawyer who may have an established working relationship with a specific insurer. That said, the final decision is still yours, and you are well within your rights to choose another title insurance company.
It’s important to do your own research and shop around to get the coverage you need. Consider suggestions from your lender — as they’re also financially committed to the property, they have a vested interest in ensuring that your title is clean.
While you should confirm the exact requirements with your insurance agent or real estate attorney, you may need to obtain an RPR before you can get title insurance and complete the sale. This should tell you:
- Whether driveways, fences, and other structures are actually on your property
- Any easements for utilities and rights of way
- If the property description on your deed is accurate
- Any other irregularities from which later disputes could arise
How to Prevent Title Insurance Fraud
Title fraud happens when someone uses falsified or stolen information to transfer the title without the knowledge or permission of the actual property owner. The person committing the fraud can then take out a mortgage or sell the property, pocketing the funds.
If you’re not careful, you could find that you no longer own your property and are on the hook for loans you didn’t take out. Here are a few tips to avoid becoming a victim of title fraud:
- Only work with vetted, licensed lenders, insurers, lawyers, and other real estate professionals.
- Keep important information in a safe place.
- Shred documents before disposing of them.
- Do not share your information with people and entities you don’t trust, especially through unsolicited emails, texts, or calls.
- Consult an attorney before giving a third party your sensitive information or the legal authority to manage your home and other assets.
- Read all documents thoroughly before signing them in consultation with a trusted lawyer.
- Check your credit report regularly and report any suspicious activity immediately.
- Buy enough title insurance coverage to insure the property for its full value.
If you are a victim of title fraud, you can submit a claim through the Land Titles Assurance Fund (LTAF) or get more information from the Canadian Anti Fraud Centre.
Key Advice From My Choice
- While title insurance isn’t legally required, consider getting a policy to protect yourself against costly title-related issues.
- Make sure you understand what your title insurance policy will and won’t cover. If you have any questions about your coverage, ask your real estate lawyer or insurance broker.
- Negotiate with the seller on who will buy title insurance. They may agree to shoulder both the owner’s and lender’s policies, saving you a few hundred dollars.