Friday Feature – What Kind of Insurance Do I Need? – Part 4 – Title Insurance
Our fourth and final insurance related article will address the subject of Title Insurance and just to make things interesting, there are actually two types of Title Insurance associated with home buying. One policy is for the lender and one policy is for the homeowner.
Let’s take a look at the lender policy first. These days, most lenders are actually making a lender title insurance policy a requirement of the mortgage and so it’s often not an optional expense. This insurance is used to protect the lender against loss resulting from legal claims by others against your new home and they ensure that the mortgage is valid and enforceable against the property. In addition, Lender’s policies contain broader coverage than Owner’s policies, most notably for coverage that occurs after the policy date. Your lawyer’s office will arrange the policy once they receive all of the mortgage information from the lender and the cost of this type of policy is usually between $200 and $250.
In comparison, a home owners policy is mostly optional, unless there is some concern over your purchase transaction closing on time. If there is some delay with registering the title in time for possession day, most lenders will accept a title insurance policy instead and then it would be in your best interest to purchase a policy. Otherwise, a homeowner title insurance policy is insurance that the improvements upon the land comply with applicable zoning bylaws and that there are no encroachments upon the lands or onto adjoining lands. If there does turn out to be an encroachment or zoning non-compliance and it needs to removed, the idea is that your policy would cover the cost of the compliance or the removal of the encroachment. According to Chicago Title Insurance Company Canada, here are the other major risks that a title insurance policy may protect against:
The unmarketability of the Land
Lack of a right of access
Someone else has an interest in the title
A document is not properly signed, sealed or delivered
Forgery, Fraud, duress, incompetence or impersonation
Future frauds and forgeries affecting title
Defective registration of a document
Restrictive covenants limiting the use of the Land
Liens arising from mortgages, taxes, utilities, judgements or condominium charges
Rights of possession arising from leases, options, family law or homestead rights
Easements over the Land
Enforced removal of existing structures because they encroach onto adjoining land or easements, or because they violate municipal by-laws
The house cannot be used as a single family residence because it violates a restriction or zoning by-law
Lastly, when you are selling your home, you are sometimes offered the option of providing to the Purchaser either a Real Property Report or a Title Insurance Policy. Because the cost of an insurance policy may be some $50 to $100 less than the cost of a new Real Property Report, sellers will often elect to provide an insurance policy. This is a bit of a hot topic, however, because if you are the buyer and you accept the title insurance policy, you may be saddled with the costly purchase of a Real Property Report when and if you ever decide to sell, as your seller may not accept a title insurance policy. If you are considering purchasing a home, this is definitely something to talk to your Realtor and your Lawyer about previous to making and offer to purchase as there seems to be differing opinions out there as to whether a Real Property Report should be mandatory or not.
If you do decide to purchase a homeowner title insurance policy, just like the lender policy, your lawyer will arrange it when processing the final legal paperwork and the cost is usually about $200 – $250. The most well known companies offering title insurance for both lenders and homeowners are Chicago Title Insurance Company Canada and First Canadian Title?.
So which type of insurance do you need? Let’s review…
“Mortgage Default Insurance”: – Not mandatory unless your downpayment if less than 20% or if the mortgage product you are using it required to be insured by the lender
Mortgage Life and Disability Insurance – Not mandatory but Advisable
Home Insurance – Mandatory
Title Insurance – Lender Policy – Generally mandatory but varies from lender to lender
– Homeowner Policy – Generally NOT mandatory but advisable
Contact one of our Mortgage Brokers for more information about any of these four types of insurance policies and where they fit in the homebuying process. If it doesn’t fall under our area of expertise, we can certainly refer you to a professional that we know will take good care of you.