Title Insurance: What's the Point?

​When buying a home, we all understand the value of Home Insurance; it protects against potential future events that could damage or destroy your home. Fire, theft, hail, and flooding are common examples. But what happens if you purchase a property only to find out that something occurred in the past that affects your ownership of that property? Enter Title Insurance. In this article, I’ll explain the benefits of purchasing Title Insurance and the risks of completing your purchase without it.

“Title” relates to ownership. When you purchase a home, you’re really buying the Title to the property. Title Insurance, then, covers defects in your ownership of the property.
 
Unlike standard insurance, where the Buyer pays a monthly premium, Title Insurance is paid for with a one-time premium before the Buyer takes possession of the property. Title Insurance typically costs between $150.00 and $300.00 and protects the Buyer against defects in Title for the duration of ownership. Consider these defects, explained in detail below:

• Building Permits (or lack thereof);
• Encroachments;
• Property Tax and Water Accounts;
• Fraud; and
• Errors in Status Certificates (Condominiums).

 
Building Permits: Consider a scenario where the previous owner added a deck, built an addition, or finished the basement without acquiring (or closing) the proper building permits. At any time after you take possession of that property, the local authority could force you to either remove or remedy the improvement. Remediation can be expensive, sometimes exceeding $100,000.00! It is important to understand that there is no reasonable due diligence that a lawyer can do to protect against renovations that were done without building permits.
 
In Winnipeg, City Council has taken an aggressive approach when it comes to enforcing building permit violations. In many instances, current home owners are forced to pay out of pocket to remedy the violations caused by previous owners. In the writer’s opinion, it is unwise to take this risk based on the assumption that your local municipality will never decide to enforce building permit violations.  
 
Under this category, it’s important to understand that Title Insurance is a Shield and not a Sword. This means that although an owner may discover that work was done to the property without a permit (or where the permit was not closed off), Title Insurance only protects when a local authority (city, municipality, or utility company) issues a Compliance Order. Nevertheless, it does happen, it can be expensive, and in the writer’s opinion it’s simply not worth the risk.
 
Encroachments: Title Insurance also protects a Buyer from unknown pre-existing encroachments. For example, the previous owner may have unintentionally built the home, laneway, fence, shed, garage, or other structure on (or partly on) a neighbouring property. The current neighbour (or a future neighbour) might take issue with the encroachment. If that happens without Title Insurance, you’ll be forced to remedy the situation at your own expense. With Title Insurance, the title insurer is likely to remedy the situation for you; it may purchase a piece of the neighbour’s property, negotiate (with compensation) an easement to allow the encroachment, or pay monetary compensation for the forced removal of the encroachment.
 
Property Tax and Water Accounts: Property tax and water accounts follow the property. If the Seller leaves an outstanding account, you, the Buyer, will be responsible to pay it. Your lawyer will conduct due diligence searches verifying there are no outstanding accounts but errors can occur. Consider the following two examples:

• Property Tax: Prior to the possession date, a property tax search is conducted and shows no outstanding balance. Months later the municipality identifies that it had applied the property tax payment to the wrong property. The municipality corrects the error and sends you, the Buyer, a notice of unpaid taxes. You contact the Seller to remedy the matter but the Seller fails to respond. Ultimately, the account is now your responsibility. If you have a Title Insurance policy, the title insurer will likely pay the outstanding balance.

 

• Water Account: The final water account may not be known until after the sale proceeds are paid out. If the Seller’s lawyer fails to hold back sufficient funds and the Seller refuses to pay the balance, the Buyer (you) may be liable. With Title Insurance, the title insurer will likely cover the outstanding balance if you’ve submitted a water meter reading on the date of possession.
  • There are well-publicized examples of water bills ranging from $27,000.00 to $87,000.00, and a water bill of $5,000.00 is certainly not uncommon! It is this writer’s opinion that the risk is too big not to use Title Insurance.

 
Fraud: If somebody forges your signature without your knowledge and registered a fraudulent mortgage, the onus to prove fraud rests with you. This can be costly and time consuming. A Title Insurance policy will likely cover legal expenses and costs to prove fraud was committed.
 
Errors in Status Certificates (Condominiums): A Status Certificate is provided to you, the Buyer, by the Condominium Corporation. It identifies if the current owner has any outstanding accounts (condo fees or special assessments, for example) with the Condominium Corporation. Most Title Insurance Policies allow for the Status Certificate to issue between 30 and 60 days prior to closing. If, unbeknownst to you, arrears accrue or there is a special assessment after the Status Certificate issued and the Seller refuses to remedy the situation, you will ultimately be responsible. A title insurer will likely cover the loss.

Disclaimer: The content above is presented for informational purposes only. The content does not constitute legal advice or solicitation and does not create a solicitor client relationship. The views expressed are solely the authors’ and should not be attributed to any other party. The author makes no guarantees regarding the accuracy or adequacy of the information contained herein. Proper legal advice is always dependant on specific facts and circumstances. If you are seeking advice on specific matters, please contact Levi A. Taylor at levi@leviabramlaw.com or 1 (204) 292-8335.