Title Insurance Protects Buyers and Lenders

Title insurance is something to consider when buying a home. Discussing this insurance with your lawyer will help you to determine if it is needed as it depends on the type of transaction you are doing. Lenders who provide mortgages commonly require this insurance to protect themselves against defective titles.

A title is written proof of the legal ownership of a property. Before closing on the purchase, a search of public records is done. This will confirm the previous owner of the property, existing mortgages, liens, and any outstanding charges such as utilities that are attached to the property. In some instances problems with the title are not discovered or dealt with before closing and it could be months or even years before defects in the title are discovered. If the buyer of the property discovers problems with the title after buying the property they may end up having to spend their own funds to clear the title. For example, after the closing date it could come forth that an outbuilding was built on an adjoining premises without legal permission to do so. It is very possible that the owner will be forced to pay for the removal of the building from their own pocket because the title is now under their name. For this reason title insurance can come in very handy to protect the buyer from unfortunate and potentially expensive situations which could arise.

Title insurance protects a buyer, lender, or both the buyer and the lender. Some lenders require title insurance as a condition before releasing the money to protect their interest in the property. The insurance policies can be bought for the whole time the buyer owns the property or in the case of protecting the lender, for the entire duration that they have an interest in the property. Claims that are normally covered under title insurance include forced removal of existing structures, fraud, forgery, duress, work orders, zoning or by-law non-compliances, lack of access to the property, and survey irregularities. As with any insurance policies, not all perils are covered. Environmental hazards and native land claims are commonly excluded under title insurance policies.

Unlike other types of insurance, title insurance protects the buyer and/or lender from events that happened in the past, not the future. The title must have already been defective before the insurance was bought or the claim will not be covered.