In the flurry of activity that is buying a house — between signing documents, sorting insurance, inspections, moving, and updating your address — one item can often easily get left off the agenda: title insurance.
Unlike its more common cousins, home and rental insurance, which protect your home and its belongings, title insurance protects you in case the legal ownership of your home (also called the “title”) becomes key to a legal or monetary dispute.
As one homeowner in Toronto found out last year, bad actors can and will forge documents in order to sell your house or put a second mortgage against it. It may not be a common occurrence, but it could be a costly one.
While fraudsters might catch the headlines, they aren’t the only reason to consider title insurance on your personal property.
Why you need title insurance when you buy your home
Title insurance can save you time, money, and potential fraud. Here are a handful of instances where it may come in handy during your next big move.
Unexpected costs are, unfortunately, part of the home buying process. But you might not expect those extra dollars to result from a clerical error. For example, if a previous seller or financial institution made an error in transferring the title, saddling you with some legal costs you weren’t expecting, title insurance is meant to foot the bill.
According to the Financial Services Regulatory Authority of Ontario (FSRA), title insurance can cover liens that previous owners may leave against their property, like unpaid property taxes or utility bills, which can cause significant delays when it comes time to sell the property on to someone else.
When you own a condominium, there’s an inherent expectation that the condo board will equitably, legally, and responsibly manage the affairs of the building and its owners. However, when that doesn’t happen, title insurance can step in.
That could mean dealing with undisclosed assessment fees, errors by the condo board — like overlooking zoning bylaws — or modifications by a previous owner that put the property in violation of building codes. All of which could mean your home is in some hot legal water.
Disputes over land property records
Title insurance protects you against any outstanding payments attached to the property that may be passed on to you. If a disagreement arises between you and your neighbour or the municipality over matters related to zoning or property area covered under the title, you may be able to file a claim.
Another precaution you can take in addition to title insurance is a property survey, which provides vital information on the status of items like what zoning area your property falls in or the exact dimensions of your lot.
Having this information ahead of closing can also help you foresee any potential areas of conflict with neighbours and decide if you still want to follow through with the sale — since most title insurance policies don’t cover you for boundary discrepancies.
Professional Surveyors Canada (PSC), a professional organization that supports surveyors, stresses the importance of any new homeowner having a survey done in addition to securing title insurance. According to PSC, even if the monetary costs of fixing an error aren’t that much of a hassle for you, losing out on an aspect of your property and having less fulfilment while living there is a worthwhile reason to invest in both a survey and title insurance.
Rest easy with title insurance
Title insurance isn’t mandatory, but it’s a good idea to give you not just legal protection, but peace of mind. You can always use a title insurance calculator to estimate your prospective cost.
If you’re a first-time homebuyer, be sure to review what protections, including title insurance, you should have in place when you climb that first rung of the property ladder. Title insurance, unlike home insurance, is most often paid at the time of purchase rather than as an ongoing fee and is usually handled by your lawyer rather than your insurance broker.
While some providers do offer title insurance after the fact, it’s a good idea to account for this cost while you’re comparing mortgage rates. The horror stories you hear about mortgage fraud are not common occurrences, per se, but they do happen. And when it comes to the legal status of your home, it’s best to play it safe.
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