You know that you can insure against what might happen to your home and its contents in the future, but are you aware that you can also protect your home from matters that happened in the past?
The Risks That Are Covered
Title insurance policies cover a broad range of risks that include:
Consider this situation: A man knocks on your door and tells you that he actually owns the home you purchased several years ago and have lived in since. The problem, he explains, is that a deed was forged twenty years earlier that illegally transferred the property owned by his now-deceased father. Even though you later bought the property in a legitimate deal, the forgery voided that original sale and all subsequent sales, including yours.
This is when you want to be able to pull out your title insurance policy.
Depending on the age of the home, it may have gone through many changes of ownership in the past, and before the house was built, the bare land may have gone through many more. Every transfer of ownership provides an opportunity for error, deliberate omission, or crime.
When you purchase a property, the seller generally provides a deed that contains a guarantee that the title is good. The seller is stating that no other party will show up and claim to own your home because of an improper transfer in the past and you won’t be hit with years of unpaid property taxes or other potentially devastating problems. However, that seller may be completely unaware of a past problem that, if discovered, would void the sale.
Title insurance is aimed at protecting you from such problems.
Title insurance companies assume the risk that a homeowner may be required to remedy a title problem at a later date. When covered title problems arise, it is the role of the insurance company to correct the problem or pay for any loss the policyholder incurs up to the policy amount. Additionally, all title insurance companies pay for legal costs incurred in defending title against the claims of others. (See right-hand box for a list of risks title insurance generally covers.)
Most title insurance policies contain exceptions for such matters as failure on your part to disclose pertinent information that could affect the title.
The policy remains in effect as long as you or your heirs own the property, and you can purchase a policy long after you bought it.
Many lenders require title insurance to protect them against a loss on the mortgage up to the principal amount of the loan. Those policies remain in effect as long as the mortgage remains on the title.
Before a title insurance policy is issued, the title company or an attorney examines all public records that pertain to the ownership of the property, usually going back 50 years, to ensure that the chain of title is problem-free. Once the company is certain that the title is clean and unencumbered, a title insurance commitment will be drawn up, and a policy issued.
Title insurance can cut a homebuyer’s costs by eliminating many of the searches a lawyer would normally do as well as the costs of having a survey prepared and the expenses involved to remedy any problems a survey would have disclosed.
Depending on the problem, title insurance companies will sometimes provide coverage for issues that would otherwise prevent a deal from closing with problems. For example, if a bank refuses to release funds because the homebuyer has the same name as someone who is subject to a court judgment, title insurance can be used to ensure the transaction closes.
Or if it is discovered that the garage or pool of the house being purchased extends onto a neighbouring property, title insurance can cover the cost of removing the structure if that is necessary. Considering the costs that could be involved in such situations, title insurance can be a cost-effective proactive move.
The one-time cost for title insurance ranges from around $200 to about $325, depending on the province and the type of property.