Title Insurance Primer
What is title insurance? When was it developed and why? What is covered? What should every purchaser, seller and real estate agent know about the disclosure obligations?
I am often asked what title insurance is and why a purchaser should obtain it. Title insurance protects your ownership interest, or “title” to your property, from losses incurred as a result of unknown title defects or other covered matters that exist at the time of your purchase, but are unknown to you at that time.
Title insurance differs from car and fire insurance in that it does not primarily cover losses that occur after the purchase is complete. However, it does provide protection for most post-closing challenges to your title by a litigious neighbour or a fraudster.
Title insurance also protects you from most losses arising from surveying issues without the need to purchase a new survey of the property as well as issues involving existing unknown work orders, zoning violations, unpaid taxes or liens.
Title insurance was developed because the traditional method of conveying property did not provide adequate safety to the parties involved. Historically, title searches were performed by conveyancers who were generally not lawyers and therefore there was limited protection afforded if errors occurred.
In Canada, most purchasers engage a lawyer and do not rely solely on a conveyancer to complete a real estate transaction. That likely explains why title insurance was not offered by the Canadian market until 100 years after its introduction in the United States.
Traditionally, Canadian purchasers and lenders would rely on a lawyer’s opinion that they were receiving good title. Most lawyers do not perform the title searches directly but rather contract the search of title to a conveyancer.
Title insurance is now common for all residential real estate transactions because the protection provided is beyond that of a lawyer’s opinion. A lawyer’s opinion is limited to the state of the property as of the date of closing and must be qualified by many matters including the accuracy and authenticity of searches obtained, both on and off-title as well as any defects that might be revealed by an up-to-date survey. Title insurance specifically covers most unknown title defects and errors in survey and public records.
The one-time title insurance premium is off-set by the many inquiries, all of which have a fee associated with them, which are not required. Prior to title insurance the sale of a property required there be an up-to-date survey. Surveys are not required by lenders if the property is title insured. Additionally, the Law Society requires lawyers to charge a transaction levy of $65.00 on all real estate transactions if not title insured.
The cost savings far outweigh the one-time premium and the protections go beyond what a lawyer’s opinion can provide. In fact, some title insurance policies will cover financial losses you might sustain in the event that your lawyer makes an error or omission.
While it is good to know what title insurance will cover it is even more important to know what it will not cover. Title insurance will not cover the functionality or quality of the property or any changes to the current use of the property as well as known defects or something that was revealed to the purchasers before the transaction closed.
This exclusion is important for both the purchaser and the real estate agent to understand. A real estate agent is required to make reasonable inquiries and convey information to the purchaser.
The recent Krawchuk decision from Sudbury illustrate the considerable onus the courts are imposing on sellers and real estate agents to make reasonable inquiries and share all information with purchasers. If a defect is known prior to closing most title insurance companies will work with the parties to provide insurance.
The moral from the recent case law and the title insurance regime is; if you know it, disclose it. If you have further questions about title insurance, please contact me at shari@elliottlawyers.com.
