What is Title Insurance all about?
Have you ever been talking with someone who recently purchased a home and the term “title insurance” came up? Did you wonder what that person was talking about? Did that person even know what title insurance really is?
When purchasing a home, we believe a Title Insurance policy is something every buyer should consider getting. So, what is Title Insurance all about?
Unlike other kinds of insurance which protect against possible future events (something that could happen after the policy date), and which require monthly or yearly premiums to be paid, Title Insurance protects you against past occurrences (something that existedbefore the policy date) and is a one-time payment, providing a policy that is in effect for the entire time a homeowner’s name is on title.
Speaking of “title,” let’s take a closer look at this word.
In a Real Estate matter, the word “title” refers to “ownership.” A Title Insurance policy covers a homeowner if there is a defect in title (otherwise put, a defect in the homeowner’s ownership). This could occur in various ways and we will touch on the more common ones later in this article.
What is important to note is that if a homeowner has an issue with the property that has nothing to do with ownership, Title Insurance has nothing do to with it. Examples include: worn-out appliances, leaking roof, bed bugs, outdated electrical wiring, foundation issues. Remember, Title Insurance is not a home warranty product!
What is just as important to understand is that if there is a defect on title that a buyer already knew about or agreed to accept, there will be no coverage available through Title Insurance. Title Insurance can only assist someone who was completely unaware of the defect.
Without having an up-to-date surveyor’s certificate, a buyer won’t know the exact location of their property lines. Therefore, a buyer may not be aware that part of the neighbour’s garage was built on the buyer’s property. On the flip side, a buyer may also not realize the fence that “came with the property” was actually constructed in the neighbour’s backyard.
If a buyer can prove that an encroachment onto or from the buyer’s property is an unknown, pre-existing encroachment, that buyer would be able to make a claim through their Title Insurance policy.
WATER ACCOUNTS & PROPERTY TAXES
What can a homeowner do if they receive their first water bill after taking possession, only to find out the bill is for tens of thousands of dollars? How could a homeowner have used that much water already?
If the homeowner can prove that the amount on the water bill is an outstanding amount (in other words, an amount that was owingbefore the Title Insurance policy date), the homeowner would be covered under their Title Insurance policy.
*side note: This highlights the importance of all buyers taking a water meter reading on possession!
Luckily, property taxes don’t seem to cause nearly as much trouble as water accounts. This is because lawyers on both sides of a Real Estate deal make sure to do a property tax search prior to closing.
Even so, a recent buyer may become the recipient of a “Notice of Unpaid Taxes”. Here’s a real-life example from right here in Winnipeg:
Prior to possession, both lawyers searched the property taxes and all seemed fine. However, the City had mistakenly applied a property tax payment made by the Vendors of this particular property to a completely different property! Two months after possession, the buyer received a notice claiming that $2,500.00 worth of unpaid property taxes were owing.
At that point, the City became aware of its error and reversed the entire payment, which left the buyer’s property as being one full year behind in tax payments. The Vendors had since moved to Ontario and were no longer responding to the buyer’s lawyer. Therefore, the buyer made a claim through Title Insurance, and the title insurer ended up paying the taxes.
Another example of this can be read about here.
After possession, a buyer may determine there was some work done to the property without a permit. However, that aspect, in and of itself, is not quite enough to make a Title Insurance claim.
In order for a buyer to establish coverage under Title Insurance, two (2) essential principles are required:
1- A Governmental Authority (ex. the City, the Municipality, a utility company) issues an order to remedy the existing structure…
2- …because any portion of that structure was constructed without obtaining a proper building permit.
In other words, the buyer needs to show that (a)work had previously been done without a permit and (b)a governmental authority is now forcing the buyer to repair that structure due to the lack of a required permit.
As you can see, Title Insurance can be a useful addition when purchasing a home. There are plenty of other benefits to Title Insurance which go beyond the scope of this article. If you would like more information, please contact our office to schedule a meeting with one of our lawyers!
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Ashton graduated from Robson Hall at the University of Manitoba in June 2016 with her Juris Doctor in Law and was admitted to the bar in September 2017. She specializes in the areas of Wills, Estates, and Real Estate in her practice.