Title Insurance is routine in the United States and may become so elsewhere

Title insurance is a product developed and sold in the United States because of deficiencies in their land record laws. It is becoming more popular in Canada, in part due to an increase in real estate fraud, with many lenders demanding it and many lawyers advising real estate buyers to purchase it.

It differs from other kinds of insurance in some respects. Firstly, most types cover events which may, or will, take place at a future date such as fire, theft, auto, medical or death. This insurance covers problems that usually originate from past events and that may not be known at the time of purchase.

Secondly, the cost is calculated differently from most other policies which are priced using actuarial means. A relatively small fraction of the premiums for this insurance is used to pay claims. A major portion is spent on title research for each property - ensuring that the public records are up to date and as accurate as possible. Errors can't be eliminated altogether though, and so some risks do remain.

A third difference is that it calls for a one-time premium and the cover lasts for as long as you own the property.

Why it is purchased

For most people a home is the largest investment they'll make. In today's complex real estate environment, home buyers can face a range of unforeseen problems that may affect their rights of ownership and the future marketability of their property. One of the ways some home buyers choose to protect their investment is with title insurance.

Title is the legal term for the right of ownership of property and the insurance protects you, the home owner, against challenges to ownership of your home or from problems related to the title to your home.

It is a contract designed to protect against loss or damage resulting from defects in title. These defects could include:

  • Fraud (past or future)
  • Zoning infractions
  • Irregularities not revealed by a property survey
  • Errors or omissions in deeds
  • Undisclosed or missing heirs
  • Liens by contractors or for unpaid taxes
  • Undischarged mortgages registered against the title

Problems affecting title may only become known when you refinance or sell the property. Before a real estate transaction closes, a search of land title records is conducted to verify previous ownership and clarify prior dealings. If a problem isn't discovered before closing, you may end up having to pay significant costs to have it resolved or you could have challenges selling the property.

For example, if a survey failed to reveal that the garage of your new purchase extends onto the neighbouring property, you could find yourself forced to remove the garage or to re-build it on your land only.

Title insurance protects you for as long as you own the property. It’s generally purchased when you buy your home or when you refinance it, although it can be purchased any time after you buy your home. It's not a guarantee of title but it compensates the insured if title is not as set out in the policy.

Title insurance provides coverage for finding a solution to title problems and this helps to smooth the closing process, ensuring that the deal is not delayed by defects in title.

In addition, most lenders accept the insurance in place of a lawyer's report that is expected to confirm that the lender's mortgage is a first charge. This is often called gap coverage because it closes the gap between the intended closing date and the date the mortgage is actually registered.

This is extremely useful when land title registration processes are bogged down with higher than usual activity and the registration times are taking a lot longer than the "normal" few days.

Is it right for you?

As with all insurance policies, the details of the coverage need to be determined to satisfy your particular needs. It's important to consult legal and financial advisers to establish your particular requirements and to talk with your insurance agent for more information.

The coverage provides you with peace of mind. You know that if there are defects affecting the title of your home or if someone defrauds you of your property, the  insurer will take steps to help rectify these problems.