What does title insurance protect?
Title insurance protects against losses caused by a problem related to title deeds. A title deed is an official document that proves that you are the owner of a house, condo, chalet, vacant land, etc. If the damage is covered by title insurance, the insured usually does not have to pay a deductible. He also does not have to prove liability by any party.
Title insurance is not mandatory
Title insurance is optional and can be purchased when buying or refinancing commercial or residential property. It can also be taken out to speed up a real estate transaction if there is no certificate of location: Many lenders accept title insurance in place of a certificate of location.End of the insight
Two classes of title insurance
There are two main classes of title insurance: lender’s title insurance and owner’s title insurance.
1. Lender’s title insurance
Lender’s title insurance protects the title to the property. In other words, it ensures that on the date the loan instrument is signed, the lender holds a valid security on the property. Generally, the protection offered by lender’s title insurance is limited to the amount of the loan at the date of the loss.
2. Owner’s title insurance
Several types of owner’s title insurance are available on the market. The most common is home insurance which the owner can obtain when he purchases the property. This insurance offers coverage equal to the market value of the property when the contract is concluded. However, with some title insurance, higher amounts are available to cover the increased value of the property over time. Insurance companies may also offer title insurance for existing owners. This type of insurance is for owners who did not take out title insurance when they purchased their building, but who wish to protect themselves against challenges to their ownership.
Other covered risks
Although it is called ‘title insurance’, this type of coverage is not limited to risks related to title deeds. Title insurance can also cover situations that might affect servitude (right of way) and occupation of the property and result in financial losses for the owner.
Examples of risks covered:
- Title defects.
Four months after you buy a property, a stranger comes along and claims to have inherited it and now wants to take possession.
- Non-compliance with municipal by-laws.
You buy a house and are living in it. Unbeknownst to you, the terrace was built without a permit. While examining your house, the city inspectors discover this and, worse, notice that the terrace does not comply with city by-laws and must be moved.
- Encroachment on a neighbouring lot.
A new land survey shows that a part of your shed is located on your neighbour’s property. Your neighbour wants you to move it.
- Fraud and identity falsification or theft.
A fraudster steals your identity then takes out a mortgage on your property. He then disappears with the borrowed money, leaving you with a huge debt.
- Charges against the building that arise between the time the deeds are signed and the time they are published in the land register.
- Debts incurred by the previous owner using the building as security, and unpaid public utilities invoices, property taxes or condo fees.
- Construction legal mortgage for work completed prior to the date of the insurance.
- Unknown servitudes.
A few years after buying your house, you learn that Hydro-Québec has a servitude on a large part of your land where there is a pool and a shed. Hydro-Québec needs to do major work and asks you to move them. If you have title insurance, you can have your insurer pay to have them moved.
- Survey plan errors.
- Irregularities revealed by an updated certificate of location.
- Errors made during the research and examination of titles.
Any other title-related issue that would affect your ability to sell, lease or mortgage your property.
Title insurance also covers legal fees and other expenses associated with a claim to clear a title. The coverage for these fees and expenses is in addition to the amount of compensation the insurer agrees to pay out for a covered risk that cannot otherwise be corrected.
Generally, the risk covered by title insurance must be present or latent A risk is latent when it exists but is not known. before the insurance is issued. To be compensated for a loss, the insured must demonstrate that an insured risk has occurred and must establish the amount of the damage. He does not need to prove that the loss arose from the fault of a third party.
When to purchase title insurance
Title insurance can be taken out when a building is purchased or when the mortgage is renewed. The insurance stays in effect for as long as the insured owns the building or is the mortgage creditor, as the case may be. If the building is sold or refinanced, a new policy must be issued.
Title insurance does not usually cover:
- House construction quality
- Latent defects
- Title defects you knew about prior to buying the property and did not disclose to the insurer
- Environmental risks: For example, you learn that the soil under your house was contaminated by an accidental oil spill four years ago
- Native land claims
- Zoning by-law violations that are your fault
- Encroachments by fences, hedges and retaining walls
- Non-compliance of construction with the Building Act
- Problems related to artesian wells and septic tanks
- Damage that can be covered under home insurance, such as theft, fire, vandalism and water damage
Who can sell title insurance?
Only representatives authorized to sell damage insurance may sell title insurance. They must assess your needs and ensure that the products they are offering meet those needs. However, a notary To simplify the text, the term ‘notary’ is used. However, in Québec, lawyers may also, in certain cases, advise clients and perform the research necessary to guarantee the quality of the titles to buildings clients intend to purchase. can represent you with insurance representatives if you mandate him to do so and if he is not remunerated by the insurer.
How much does title insurance cost?
Title insurance is generally purchased through a single premium. The price may vary according to:
- The type of title insurance purchased (for home owners, lenders, or both);
- The type of building (commercial, condo, new or old home);
- The value of the building;
- The time when the insurance is purchased (when the building is purchased or the loan renewed).
Before purchasing title insurance:
- Ask yourself if you need this type of insurance. For example, are your notary's services sufficient?
- Check whether the person offering you this product is authorized by the AMF to sell insurance by consulting the Register of firms and individuals authorized to practise or by calling the AMF Information Centre at 1-877-525-0337.
- Read the contract. Exclusions can vary from one insurer to the next. Verify which title risks are covered and which ones are not.
- Verify that the insurance amount is sufficient.
- Ensure that the effective date of the insurance and the signing date for the purchase of the property are the same.
Don’t hesitate to shop around with several authorized insurers or representatives until you find the title insurance that suits you at the best possible price.
What to do if you are dissatisfied
Firms registered with the AMF to offer financial products and services must have a process in place to examine consumer complaints.
You can use this process to make a complaint about a firm or representative with whom you have done business.
If you are not satisfied with their response to your complaint, you can ask them to transfer your file to the AMF for analysis.