The protections of title insurance
Buy a string of pearls from a hustler on a downtown
street, and you know it's probably hot. But what are the chances
someone will stop you a block later and tell you that not only are
you holding a stolen necklace, you're now responsible for all money
owing on it?
Here's a more daunting thought: Imagine sinking your
life's earnings into a house only to learn that the seller never
had the right to sell it to you, and now you're responsible for
all his missed loan payments.
That's just one of the scenarios from which title
insurance can rescue you.
In a nutshell, title insurance protects the purchaser
of the policy -- whether a lender or homeowner -- from disputes
over property ownership. An institution in the U.S. for more than
a hundred years, it's just taking root in Canada, thanks largely
to an increase in identity theft, fraud and liens levelled as a
result of previous owners neglecting to pay their taxes.
In fact, Canadian demand for title insurance, especially
in Eastern Canada, has grown 5,000-fold since 1991, according to
First Canadian Title, of Oakville, Ont., which sells title insurance
Insure against back taxes and
There are seven areas of coverage for which title insurance provides.
- Fraud and identity theft, in case a perpetrator
steals your identification and obtains a mortgage against your
property in your name.
- Survey or title problems, such as encroachments
or setback violations.
- Tax arrears. Even if it was a previous owner who
neglected to pay taxes, the municipality is allowed to put a lien
on the property that is now yours.
- Building permit coverage. When you discover that
a building permit wasn't issued for improvements on the house
you just bought, you're responsible for removing or repairing
the addition or renovation.
- Construction liens. If there is an outstanding
amount of money against an addition or renovation, the builder
is entitled to put a lien against the property. As the current
owner, you will be responsible for payment, even if the work was
done prior to your purchasing the property.
- Work orders. They are not normally registered
on title, so are easily overlooked.
- Registration gap coverage. Should a problem be
discovered between the time you submit transfers of land and mortgage
to the land titles office for registration and the time they are
registered, you can still close the deal on time and not be forced
to pay interest to the seller.
Although newspapers these days are full of identity
theft stories, the most common title insurance claims are for tax
arrears and violations of building permits or work orders, says
Karen Decker, vice-president of underwriting at Stewart Title Guaranty
Company in Toronto.
Low cost, high value
The good news is title insurance is a relatively inexpensive indemnity
-- on average about $200 for a $500,000 house, good for as long
as you or your heirs own the house.
Most Canadian real estate buyers pay anywhere from
$150 to $1,000 (depending on the location) for a survey that establishes
whether the seller has the right to sell and collect the full payment.
But given that lending institutions are happy to accept
title insurance in lieu of a survey, potential savings can be substantial
from the get-go. In other words, it's possible to skip the survey
process and simply buy insurance instead.
But is title insurance really necessary? It is if
you want to protect yourself from fraud, which is on the rise, thanks
to the Internet, bank cards and other technological advances. According
to Susan Leslie, vice-president of claims and underwriting at First
Canadian Title, the past year saw the number of dollars her firm
paid out for fraud cases double, from 30 percent to 60 percent.
"It's a matter of educating people," she
says. "Title insurance offers enhanced protection to the consumer.
It can save a lot of heartache, time and dollars spent in legal
But Brian Brown, a land surveyor in Whistler, B.C.,
says in his province, the traditional practice of ordering a property
survey suffices, especially for construction lien and building permit
"Because we are a young province, we have learned
from other jurisdictions to set up the best land title system in
the world," he says. "A survey will ensure the structure
on the property fits into the allowable envelope, so that the building
authority doesn't come along and make you move your deck, for example.
The survey does this and guarantees it."
But there's that nagging possibility of fraud. While
all provincial governments guarantee mortgages through a setup called
Land Title Assurance Funds, making a claim through that process
can be onerous and time consuming. Property owners stung by fraud
won't see their provincial government payout for about three years.
By contrast, those with title insurance will receive their cheque
"Title insurance is taking off," says Patrick
Burke, a B.C. lawyer. "It's cheap, it's foolproof and for the
protection it gives you, it makes sense."
Withers is a business journalist, business-book editor and author
of several best-selling teen novels. Julie Burtinshaw is a researcher