The purchase of a home is probably one of the most significant purchases many will make in their lifetime. Title insurance is one way to protect the purchaser: it is a contract to indemnify up to the face amount of the policy a purchaser (or mortgagee) in the case a loss arises from one or more specified causes. It allows purchasers (and lenders) to “insure over” certain problems, rather than repairing them.
Insurance policies can vary from jurisdiction to jurisdiction and insurer to insurer. The value of title insurance depends upon the terms of the policy. A property owner has a claim against the insurance company if a specified risk causes a loss, regardless of the source of that loss. Title insurance generally does not cover items that will not be revealed by public records.
Compare this to a lawyer’s opinion on title. In this case, a purchaser only has a claim against that lawyer – and only if it can be proved that the cause of the loss fell within the scope of the lawyer’s retainer, and that he acted negligently. So, a loss due to the fault of another (i.e. municipality) will not be covered by a lawyer’s errors and omissions insurance, yet it would be covered by title insurance. Further, a lawyer’s opinion is only relevant to the state of the property as of closing, and does not cover “post-policy date” events. Title insurance, however, does offer coverage of this sort (i.e. neighbour starting to encroach on the property, or the fraudulent discharge of a mortgage that harms the lender’s interest).
It should be noted that lawyers are forbidden from receiving any compensation from a title insurer, nor can they receive any fee or commission for recommending a specific insurer. Moreover, title insurance may even reduce the legal bill of a purchaser, since certain searches may be waived by the title insurer.
A traditional policy covers the following:
– Title to the estate;
– Any defect in and charge, lien, encumbrance on the title;
– Unmarketability of title;
– Lack of a right of access to and from the land.
Title insurance is generally used as an alternative to an up-to-date survey of the property. This is to facilitate mortgage financing. If a purchaser pays for a lenders-only policy in place of a survey, he or she has no protection with respect to defects that would have been revealed by a survey. It is akin to a homeowner who buys an insurance policy for theft, but then leaves the front door unlocked. A survey can greatly assist in detecting and repairing title issues before closing.
A purchaser is generally asked to sign an acknowledgement before closing that outlines that he or she understands the policy does not cover:
– Future changes or additions to the structures located on the property, or changes to the use of the property;
– Matters the purchaser created, agreed to, or was aware before closing without having disclosed them to the insurer;
– Defects apparent from a home inspection report;
– Government rights
– Lack of compliance with fire retrofit or building code requirements;
– Residential rent regulation.
Remember to contact an experienced associate at Mullun when purchasing your home to ensure that you are protected!