Basic facts about title insurance
Title insurance is an insurance policy that protects you, the property owner, against legal challenges to the ownership or legal title you hold in your property. The policy provides coverage against losses due to title defects, even if the defects existed before you purchased your home. Title insurance policies protect you for as long as you own the property. It protects against a number of risks that a solicitor's opinion on the title may not cover.
Considerations in choosing title insurance
Generally, your lawyer carries out a title search against the property along with a number of other searches such as zoning, work orders, judgments and tax searches to ensure that the property you are purchasing can be legally occupied, that there are no tax arrears, liens or other legal issues that would adversely affect your future ownership interest in the property. This will include a review of the survey to ensure that there are no encroachments affecting the property and a search of executions against the vendors, and in some instances, predecessors in title. An execution is a writ of seizure and sale of property placed by a creditor who has obtained a court judgment against a property owner. Executions must be paid off in order to pass clear title to a purchaser.
In a title insured transaction, some of these searches can be skipped or a survey can be omitted. Instead, a policy of insurance is issued to the purchasers and their mortgage lender. Unlike the various aforementioned searches your lawyer carries out against the property, title insurance does not ensure clear title passes to the purchaser, but instead it provides for the payout of compensation in the event a cloud on title is discovered after you become the property owner. For most transactions, a title insurance policy costs between $300-$500.
The purchasers can use the title insurance to avoid the cost of having a new survey prepared. In recent years, municipalities have substantially increased the costs of zoning, subdivision and tax searches making title insurance an increasingly competitive option in some transactions.
Situations where time is a factor
When a vendor or purchaser wishes to close a transaction quickly, a policy of title insurance is often the best option. By eliminating many of the searches otherwise required, a policy of title insurance can facilitate closings on very short notice.
NOTE: This information is based on Ontario law and does not constitute legal advice. It is intended to inform and not to advise and does not create a solicitor/client relationship. The statements above are general in nature. The individual facts in a given case may alter their application or involve other laws not referred to here. Any amounts referred to are subject to change.