Title insurance is growing in popularity in Canada. But what is it exactly? Should you get it? Do you need it? Whether title insurance is right for you is something you should discuss with your lawyer, as it depends on the circumstances of your transaction.
Title is the legal term for ownership of property. Buyers want "good and marketable" title to a property - good title means title appropriate for the buyer's purposes; marketable title means title the buyer can convey to someone else. Prior to closing, public records are "searched" to determine the previous ownership of the property, as well as prior dealings related to it. The search might reveal, for example, existing mortgages, liens for outstanding taxes, utility charges, etc., registered against the property. At closing the buyer expects property that is free of such claims, so normally they must be cleared up before closing. For example, the seller's mortgage will be discharged and outstanding monetary expenses (such as taxes and utility charges) will be paid for (or adjusted for) at closing.
Sometimes problems (or defects) regarding title are not discovered before closing, or are not remedied before closing. Such defects can make the property less marketable when the buyer subsequently sells and, depending on the nature of the problem, can also cost money to remedy. Title Insurance is a cost-effective protection that shields homebuyers from many of the major risks that can affect the ownership and/or future marketability of title to a property.
A title insurance policy protects residential or commercial property owners and their lenders against losses related to the property's title or ownership: it protects against title defects or unknown claims on the property that can affect ownership rights. Title insurance moves the risk associated with title from the buyer, homeowner or lender, to the title insurer.
Title insurance is typically purchased by homebuyers for a one-time fee at the time of closing; however it can also be purchased by existing homeowners (existing homeowner policies differ from those obtained at closing). Residential title insurance coverage usually lasts as long as the insured owns the property and coverage often extends to heirs, spouses (in the case of divorce), or to children (when property is transferred at a nominal cost).
Title insurance can help ensure that a closing is not delayed due to defects in title. And, if an issue relating to title arises with respect to a risk covered under the policy, the title insurance covers the legal fees and expenses associated with defending the insured's title and pays in the event of loss.