What is Title Insurance & what does it cover?

Posted by Jay McDouall on Thursday, June 20th, 2019 at 4:35pm.

Understanding Title Insurance Protection

As incidents of real estate fraud increase throughout Canada, homeowners and lenders are proving to be irresistible targets for fraudsters. To help protect yourself against huge financial losses caused by title fraud, you may consider purchasing title insurance. Unfortunately, many home buyers purchase title insurance without knowing what the actual covered includes. Others fail to purchase an insurance policy altogether. In this article, we discuss key things buyers and owners of real property should know when considering whether to purchase homeowners title insurance. You must purchase title insurance through a law firm in Alberta.

What Is Title Insurance?

Title insurance is an insurance policy that protects both the buyers of real property and the lender’s interests against losses that may arise with respect to the property’s title or ownership. While the title system in Alberta, the Torrens System, there are certain title defects that do take place. Essentially, your title is guaranteed by the Province. A person cannot go back in history, find a technical flaw in a historical transfer and then claim title. In addition, you are able to fully rely on the registrations that are registered at the Alberta Land Titles Office. Title insurance is not a replacement for a competent Realtor or lawyer when you buy a home. It is an additional form of protection for both during a real estate purchase and after you own a home.

What Are Insured Risks Under A Title Insurance Policy?

Every insurance policy will have a detailed lists of what risks the specific policy insures. Key benefits of purchasing title insurance include preventing financial losses from:

  • Fraudulent real estate transactions, such as situations where fraudsters impersonate homeowners to obtain mortgage financing;
  • Violations of municipal zoning by-laws and building permits;
  • Existing liens registered against the property’s title, such as unpaid utility, mortgage, condo charges, and property taxes from the previous owner;
  • Errors in surveys and public records; and
  • Unknown title defects that prevent you from having clear ownership of the property which may impact your ability to sell, lease or mortgage your property in the future.

What is Typically Not Covered Under Title Insurance?

Possible exclusions to your title insurance may include:

  • Title defects that you knew about before purchasing your property;
  • Native land claims;
  • Issues only discoverable by a new survey or property inspection;
  • Problems not listed in public records (such as unrecorded liens and encroachments); and
  • Zoning bylaw violations that you are responsible for creating.

Remember: It is important to read the terms of your insurance policy to fully understand the exclusions from your coverage.

Some title insurance policies will cover known risks that are not likely to cause a loss. Other policies will insure around a defect. This means that your coverage protect your property for most risks but the known defect is exempted out of the policy. There is no coverage for that defect.

How Much Does Title Insurance Cost?

People purchase title insurance from an insurer (usually by the buyer of a home or an existing home owner) and costs a one-time fee, called a premium, that varies depending on the value of your property. Typically, a home valued at under $500,000 will cost around $200 – $275.

It is important to note that there are two policies. different policies exist for home or property owners and another policy exists for mortgage lenders. The other type of policy protects a buyer or owner of property. One policy does not protect both lender and owner. When purchasing a policy for a mortgage lender (when you buy a home or refinance your home), most insurers have a reduced insurance premium for a homeowners’ policy. Therefore, it makes a lot of sense to buy an owners policy if you are getting a new mortgage and need to buy a lender policy anyway. Once purchased, your insurer will issue the policy to the buyer and/or the mortgage lender.

How Long Does My Coverage Last?

Title coverage lasts as long as you own the property and covers losses up to the maximum coverage set out in your policy. Most policies even extend coverage to your heirs (through a will), to a spouse in the event of a divorce, and to your children when a parent transfers property to that child or children. Many people come to us with real estate related problems years after they bought a home and forgot that they had purchase protection.

Do I Absolutely Need to Purchase Title Insurance?

No law in Alberta requires title insurance. As with most insurance products, investing in insurance protection is a personal choice. Some mortgage lenders will require you to pay for a policy to protect them when you get a new mortgage.  Discuss buying a policy with your lawyer or a title insurance company to fully understand what the policy covers. You may even require extended title insurance that covers additional risks not covered by a standard title insurance policy, such as certain known title defects.

Ordering Title Insurance In Alberta

We can make recommendations on how you are protected under Title insurance and assist you in making an informed decision based on your specific needs. Ordering a policy must go through a law firm so we can point you in the right direction with many of our trusted legal contacts. Call us today in Red Deer, at 403 396 7355 or email us here directly.

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