When you buy a property, you become the owner of a deed that gives you the legal right to the house. You can demonstrate your legal ownership of the property after your name appears on the deed.
However, issues might occasionally arise after the sale. You can encounter unforeseen events, the former owner might decline to sign the deed to you, or you might have difficulties registering the title. Title insurance protects your lender from financial harm caused by ownership disputes, liens or other debts on the property, fraud involving the title to the property, incorrect land valuations, and other issues.
What Exactly is a Title Insurance?
A loan policy, which is another name for title insurance, is always required. With the help of an insurance policy, your lender’s interests are safeguarded, and it is made sure that their claim to the property is prioritized over any other debts or liens. The lender’s title insurance will always be a required expense when you take out a mortgage, typically as part of your closing costs.
The best thing about title insurance is that it only needs to be bought once, after which it can be passed on to any heirs, partners, or children. Even at a one-time cost of $250 (and up), title insurance typically covers the whole value of your property. When you close with your lender, your attorney will typically buy title insurance on your behalf.
It’s crucial to understand that title insurance differs from property insurance. Only claims relating to the ownership of your property, not the actual property, are covered by title insurance.
Read More: Mortgage Insurance in Canada
Different Types of Title Insurance
Typically, there are two types of title insurance. Lender’s title insurance is the most common type of title insurance and is always mandatory. This type of insurance protects the financial interests of the party supplying your mortgage and makes sure they have the first claim on the property if any title disputes do arise.
Owner’s title insurance is optional and can be purchased on top of the lender’s title insurance. This type of insurance protects you, the homebuyer, and covers the financial damages that can arise from title-related claims.
Why Do I Need Title Insurance?
Following the purchase of your house, title insurance can shield you and your lender from a variety of unforeseen claims and disputes, particularly in the following areas:
- Legal Charges: You might have to go to court to protect your right to possess your house. You might save thousands of dollars if your title insurance covered all legal costs associated with the ownership of your house.
- Gap Insurance: Imagine if something goes wrong between the time you complete the sale of your new house and the time you are recognized as the owner of the property. In that situation, the corresponding costs will be covered by the gap insurance. These include fraud, inaccuracies in survey results, and problems in your title documentation.
- Property inspections: A property survey is carried out before to the sale of a house to establish the land’s borders and spot any subsurface features, such as septic tanks, that might need to be fixed. After the sale of the house, a second property survey is typically performed to resolve any issues. This second property survey may be covered by property title insurance.
- Easements, Liens, and Debts: If the previous owner of your home was careless, you can inherit any unpaid taxes, utilities, or maintenance fees. You can be shielded from these expenses and have any related expenditures paid for by title insurance. Additionally, easements that are required for city services to access a portion of your land are protected by law.
- Comprehensive Protection: Any additional fees or expenses related to your title ownership are included here. If you ask, your insurance company will be able to provide you with a more thorough overview of your coverage choices.
Unfortunately, title insurance does not offer complete protection. If you did activities that could have been avoided or prevented, your insurance won’t pay for property rights violations that resulted from those actions. This includes neglecting to pay your property taxes or your maintenance obligations.
Additionally, you are ineligible for coverage for environmental issues, government takeovers, or disputes over Indigenous peoples’ land.
Why Do I Need Owner’s Title Insurance?
Long after the sale of your house, title insurance keeps you and your inheritors safe. Even if you’ve owned the property for a long time without any problems, a title claim might happen at any time, which surprises most homeowners.
For instance, it’s possible that the former owner sold you the house without being aware that someone else had acquired ownership of it through another legal process. In this situation, you will probably need to challenge the ownership of your home in court.
Is It A Good Idea To Invest in Title Insurance?
The title insurance coverage of your lender will probably be disclosed to you when you submit your mortgage application. Most of the time, your agent or attorney will get title insurance on your behalf and include it in the closing fees.
Although it is not required, homeowner’s title insurance can be quite beneficial in defending you and the property’s inheritors. In addition to the precautions already discussed, title insurance can give you money in the event of a fraudulent deed and safeguard your ability to sell your house later, even if mistakes are found in the deed.
In other words, it makes up for any secret information that, if you had known about it earlier, may have changed your mind about buying the house.
The good news is that title insurance purchases are not subject to any rigid deadlines. Even if the sale of your house has already been completed, some lenders will allow you to purchase title insurance. Although there will be some modifications between the plans offered prior to the transaction and those offered following, you will still have access to all of the significant advantages.
Speaking with a lawyer to learn about the policies and options you have is the best method to compare your options.