Title Insurance Tidbits



Title-insuranceTitle insurance is usually an afterthought for people getting a mortgage. But it’s becoming more of a decision point since so many lenders now require it.

The purpose of title insurance is to protect you if there’s a problem with your title. Those problems can turn into expensive nightmares in the small chance that you encounter them. Examples include ownership disputes on your property, title fraud, un-discharged liens, encroachments, zoning issues, survey problems, property tax arrears and so on.

Real estate lawyer Bob Aaron wrote a recent overview of title insurance here. He says, “Most real estate lawyers today regard title insurance as a critical component…and will usually not close a purchase without it.”

And no, lawyers don’t get big kickbacks for pushing title insurance. Aarons says lawyers “are not permitted to get referral fees/commissions” on title insurance. Lawyers recommend it because it protects the homeowner, limits the lawyer’s liability and makes closing more efficient.

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There are two broad types of title insurance:

  1. Homeowner policies, which:
    • Cover the homeowner
    • Last as long as you own the property
    • Are priced based on the property value
  2. Lender policies, which:
    • Protect the lender’s interest in your mortgage
    • Last as long as you have your mortgage
    • Are priced based on the mortgage size

The cost of title insurance varies widely depending on the location, type and value of the transaction. It starts at roughly $150-$350, but can climb from there. Here’s a calculator to estimate policy cost from FCT (First Canadian Title), Canada’s top provider of title insurance.

Once you pay for title insurance, you can often avoid paying for it again. Here are some cases where that’s true:

  • You purchase a homeowner policy and stay in your home
    (Homeowner policies generally cover your property for as long as you own it.)
  • You pick a lender that doesn’t require a lender title policy
    (Many do, but some don’t.)
  • You refinance and choose a lender that pays for its own mortgage-only title policy
    (A broker can tell you which lenders do this. Keep in mind, a lender-only policy doesn’t protect you.)
  • You switch lenders and your existing policy is “ported” to the new lender
    (If it can’t be ported, many lenders will pay the new title insurance premium for you on a straightforward switch.)

Reta-Coburn-FNFTitle insurance can be switched to a new lender only under certain conditions, says Reta Coburn, president of FNF Canada, the Canadian division of the world’s largest title insurance organization. “Loan policies for lenders are transferable when the original mortgage is not being discharged from title and is simply being transferred by way of a registered assignment of mortgage,” she says.

The stipulations are that, “The original mortgage security must remain unchanged and no additional funds can be advanced, unless provided for under the original mortgage terms and conditions. The date of policy is the date of registration of the original mortgage, so the new lender assumes the coverage under the policy of the original lender at the date of that mortgage registration.”

Two related notes:

  • The loan-to-value cannot increase if a title policy is being transferred to a new lender.
  • Lenders don’t usually accept assignments of collateral charges, so for practical purposes a title policy on a collateral charge mortgage isn’t generally transferrable.

eric_haslett_FCTEric Haslett, LLB, VP Residential Title Insurance at FCT, adds that: “Provided the new lender agrees to take an assignment of the existing mortgage, the…title insurance policy will follow the mortgage to the new lender and no additional title insurance premium is charged.”

But lenders don’t always accept a mortgage that a prior lender has registered. That’s because, as Haslett puts it, “The new lender is stuck with whatever the language is in the existing lender’s mortgage documents.”

And here’s an interesting side note:

Haslett says, “New lenders often don’t request assignments from an existing lender because (doing so) provides that lender an opportunity to…retain the borrower.”  If the old mortgage is discharged and a new mortgage is registered, however, “The existing lender often doesn’t know about the borrower moving until it’s too late.”

In addition, when clients change lenders using a refinance instead of an assignment, the party requesting the discharge statement (from the existing lender) doesn’t need to disclose the new lender’s name. As a result, the existing lender cannot see who they are competing against.

Haslett adds that, “If a lender wants the old mortgage discharged and a new mortgage registered, it will attract a new title insurance policy in the name of the new lender and result in a title insurance premium.”


Rob McLister, CMT

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Comments

  1. Comment avatar

    Just wondering    

    Anyone have any idea how often title insurance policies pay out? Is it 1%? 1/2%? 1/4% of the time?

     
  2. Comment avatar

    Just answering    

    Specific claim data for the Canadian title insurance companies can be found on the OSFI Site.
    Unfortunately no provincial breakdown is available (that I have been able to find)

     
  3. Comment avatar

    Moca    

    Doesn’t title insurance cover items that should be found if existing by your lawyer ? Easy to understand why your lawyer wants you to have it as it protects them. If you pay a lawyer to help you with a real estate transaction they should be confirming clear title, any pre-existing liens or disputes, confirmation that taxes are up to date etc. so isn’t title insurance amounting to lawyer insurance and you pay twice fro the same coverage

     
  4. Comment avatar

    REpro    

    If you didn’t buy title insurance your lawyer would charge more. Laywers bill by the hour. How long do you think it would take to check if there are
    others who own an interest in your title
    existing liens against the title
    violations of municipal zoning by-laws
    encroachments onto an adjoining property
    setback violations
    realty tax arrears
    outstanding municipal utility charges
    existing work orders
    lack of legal access to the property
    unmarketability of the land due to adverse matters that would have been revealed by an up-to-date survey / RPR/ Building Location Certificate
    fraud, forgery and false impersonation to the extent they affect the validity of title

     
  5. Comment avatar

    moca    

    when I purchased my first home way back in the 80s my notary (who handle legal contracts such as these found an error in the sale o fthe land from the church to the developer who built the house, adn this was five transaction of sale before ours. THe notary made the necessary changes to conditions on the sale to ensure that the sellor was responsible for correcting this change not the purchaser. When I thanked the notary for finding this and correcting, he mentioned that this was his job, and should have been noted by the previous notaries who obviously did not do their jobs. Should we be paying for incompetence by buying insurance. Sorry but all these checks are part of the purchase and sale agreements and lawyers should be held responsible, not an insurance policy.

     
  6. Comment avatar

    JT    

    In Alberta, with a torrens title system, landowners are “insured” by the Land Titles Office for errors on the title. No worries there.
    Also, in response to REpro; in Alberta almost every one of the items you mentioned will be caught on the RPR that is signed by a Land Surveyor (who has professional liability insurance). Again, you can sleep at night!
    All of the provinces aren’t this way unfortunately.
    To top it off, most title insurance in Alberta that is REQUIRED by a lender is not a homeowner policy- but you get to pay for their peace of mind.

     
  7. Comment avatar

    KS    

    I just paid off my mortgage. I’m in Alberta, is it recommended to get Title Insurance?

     
  8. Comment avatar

    YassM    

    If you have paid off your mortgage, then there is no need for a title insurance. This is normally requested by lenders from a lawyer to arrange on mortgage approvals to ensure the title is clear and free of any liens against the property.

     
  9. Comment avatar

    David Wiseman    

    YassM, if someone has paid off their mortgage there is an even stronger need to have Title Insurance than when they had the mortgage – fraud coverage. While you have indicated the initial reason for Title Insurance (to cover the Lender in case of title deficiencies) you neglect the fact for a small one time fee the clients would be covered or both mortgage and title fraud.

     
  10. Comment avatar

    Catherine Rut    

    Do lenders in Ontario currently require title insurance, or is it optional?

     

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