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What is Title Insurance all about?
Author: 
Philippe Richer
February 18, 2020
A drawing of a house with an umbrella over it.

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 the 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? Unlike other kinds of insurance that protect against possible future events (something that could happen after the policy date) and require monthly or yearly premiums, title insurance protects you against past occurrences (something that existed before the policy date). It is a one-time payment, providing a policy for the entire time a homeowner's name is on the 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. 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 to do with it. Examples include worn-out appliances, leaking roof, bed bugs, outdated electrical wiring, foundation issues etc. 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 completely unaware of the defect.

Encroachments

Without an up-to-date surveyor's certificate, a buyer won't know their property lines' exact location. Therefore, a buyer may not be aware that someone built part of the neighbour's garage 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 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 was owing before 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 before 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, Manitoba. Before possession, both lawyers searched the property taxes, and everything seemed fine. However, the City of Winnipeg 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 they owed the City of Winnipeg $2,500.00 worth of unpaid property taxes. At that point, the City of Winnipeg 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 their title insurance, and the title insurer ended up paying the taxes. Another example of this can be read about here.

Building Permits

  • After possession, a buyer may determine someone did some work to the property without a permit. However, that aspect, in and of itself, is not quite enough to make a title insurance claim. For a buyer to establish coverage under title insurance, two essential principles are required.
  1.  A government body (ex. the City of Winnipeg, a utility company etc.) issues an order to remedy the existing structure.
  2. The buyer needs to show that (a) the work had previously been done without a permit and (b) a governmental authority is now forcing the buyer to repair the structure because of a lack of a  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 that 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! FOr further reading on title insurance, checkout this article.

Disclaimer - Legalese

This article is presented for informational purposes only. The content does not constitute legal advice or solicitation and does not create a solicitor-client relationship (this means that I am not your lawyer until we both agree that I am). If you are seeking advice on specific matters, please contact Philippe Richer at 204.925.1900. We cannot consider any unsolicited information sent to the author as solicitor-client privileged (this means confidential).