Title insurance has become an essential part of the standard real estate transaction and a valuable protection for homeowners. With the abundance of insurance products out there however, it’s not surprising that many people don’t actually know what it does. While trying not to get overly complicated, here’s a brief overview of just how it works and why it plays such a big role in real estate transactions today.
You see, when you buy property, your name is recorded in a public record that keeps track of land ownership. The public records that record all the land ownership in the province are held within the Land Registry Office (LRO) of each individual jurisdiction. Each divided property has its own Property Identification Number (PIN) which can show you the entire history of that piece of land. You can search the history of each portion of land until you reach the inception of the very province, and even the country.
It’s not just the ownership of property that’s kept in the records however, there are many other instruments that may also be registered against title. For example, rights-of-ways and easements all find their home in registration form within the system. Your mortgage is also registered in the LRO, being the entire reason why we have “secured” debts to begin with. Secured debts, or any secured interests in land really, are secured for the very fact that they are registered in public record and therefore have legal rights associated on how to protect them and how to enforce them. Basically, anything that might restrict your use of the property or debts that relate to the property (or the person who owns the property) are registered there too.
Why is that important? Well, when you acquire title to a property, you may just inherit all the debts and restrictions that are registered there. Then you become responsible for them. If you wish to sell your property in the future, you may be stuck having to deal with things before anyone will accept the transfer. That’s why the role of the lawyer has always been of utmost importance. It’s your lawyer who is responsible for reviewing title to the property and for making sure you either understand what you’re inheriting, or ensure that you don’t inherit what you shouldn’t be responsible for. After all, you wouldn’t want to inherit someone else’s debt on title; if it’s time to collect, the creditor may just have a claim to that land too.
There are also interests that can be registered but have yet to be. Unpaid condo fees under the Condominium Act (Ontario), unpaid property taxes, a lien under the Construction Lien Act (Ontario), open work permits, the list goes on. These interests can usually be found in ‘off-title searches’, meaning a fee paid and individual inquiry made to various third parties in order to ensure no issue which could affect title to your property remains unaddressed. They usually take some time to obtain and often times the cost of all the searches will be higher than that of a title insurance policy.
Title insurance has been developed to combat such issues and has become a vital element to most real estate transactions. Title insurance serves to provide three main functions:
- Protect claims arising out of off-title searches;
- Protect against identity theft; and
- Protect a lender’s interest in your property.
For a one-time fee, title insurance provides the above-noted protection which is based on the current value of the property. Once title insurance is obtained, it remains in effect for the duration of period for which you hold title to the property. In the case of mortgage lender’s coverage, however, that portion of the property will last for however long the mortgage is registered on title.
There’s also the matter of fraud. In this age of technology, identify theft has been on the rise and real estate has become a prime target; it is common for identity thieves to register mortgages on properties unbeknownst to the actual title holders. The Mortgages Act provides that a mortgagee has the power to sell a mortgaged property if the debt isn’t paid on time. If a mortgage were to be fraudulently registered to your property, you may not become aware of it until such time that such power of sale proceedings has begun. By the time the true holder of title becomes aware that a mortgage has been registered and payments have not been made, much time has passed and the culprit becomes more difficult to track. Title insurance provides coverage for the losses incurred in such cases of identity theft to ensure that those holding title are not affected by this unjust financial burden.
Not just mortgages, but some owners have found their properties sold right under their noses! Usually they aren’t living there, or have taken some time away from the property. These cases find the owners have been impersonated and completely sell the property to a unknowing buyer. It can create a big legal mess (imagine the buyer who is all set to move in and finds they don’t really own the home!). Title insurance works to protect against these circumstances too.
Throughout your ownership of the property title insurance coverage will allow you to rest assured that in either of these cases title to your property is protected and can be brought back in good standing. If you don’t have a mortgage on your property, it may be a very good idea to get insured as well. Fraudsters are typically fond of properties with lots of equity and no debts on title.
Your property is usually the largest asset that you may have in their lifetime. The value and peace of mind provided by title insurance coverage usually outweighs the one-time fee it costs to obtain the policy. Not only will it save time and costs by removing the need to have lawyer conduct off-title searches and tend to any issues that arise, but it will also assist you in satisfying the requests of those mortgage companies that require such assurances before advancing the funding for your purchase. Coupled with protection against identification fraud and fake mortgages, it’s often easy to see why title insurance is part of almost all real estate transactions today.
Of course, this is just a brief and simplistic overview, and to find out more about title insurance, or if title insurance is right for you, it’s important to speak to your lawyer. Let us know, we’d be happy to go over the details.