Title Insurance – Hysteria Or Sensible Investment?
It is often said by our clients that if the only thing title insurance buys is peace of mind then maybe they can do without the extra expense on closing. As lawyers we are even occasionally asked whether we are paid a commission from the title insurer for placing the policy on behalf of our clients. So many misconceptions and even some mistrust; and for good reason. Even brochure materials published by the leading title insurance companies leave most lay persons scratching their heads in confusion as to exactly what it is they are being asked to invest in and why the investment is a sound one.
Title Insurance – What it is, in a nutshell
Title insurance protects a home owner’s legal title or ownership. It is often confused with home or fire insurance policies which protect the structural integrity and the contents of a house and other dwelling erected on land. Very simply then, while home insurance will provide protection in the event that the insured property is damaged by fire, water, or other occurrences against which the policy covers, title insurance provides protection against a host of title related matters and pre-existing title defects.
What Specifically does Title Insurance Protect Against?
Title insurance provides coverage against loss arising from the following matters, amongst others:
- Title Fraud, including Mortgage Fraud;
- Pre-existing work orders;
- Defects such as encroachments which would only be revealed by an up-to-date survey;
- Renovations completed without required permits or otherwise contrary to Building Code;
- Tax Arrears;
- Water Arrears; and
- Unpaid Liens not revealed by a search of title.
What is the Cost of the Premium For How Long does Coverage Extend?
Premiums are relatively inexpensive, and vary somewhat from one company to the next. Premiums also vary depending on the value of the home or building being insured and can range from anywhere between a couple of hundred dollars to more than one thousand. What does not vary, however, is that the premium is always a one time only charge. Accordingly, unlike other policies of insurance which charge annual premiums, title insurance premiums are paid for up front and as a single cost with no renewal fees or deductibles.
Pricing can be determined prior to binding a policy and usually requires little more than one of our lawyers or real estate clerks phoning the leading title insurance companies for price quotes. Our office does not charge a fee for arranging and binding the policy in addition to our standard real estate service fees.
Finally, a homeowner is insured for as long as his or her name remains on title, that is, for as long as the insured owns the property. Title is therefore insured until it is dispensed with by, for example, sale to another individual in which case the policy is non-transferable.
Worthwhile or Not?
This question is asked by anyone or more of our real estate clients at least once each day when the topic of whether or not to purchase a policy of title insurance comes up for discussion. Any attempt at answering the question of whether title insurance is a worthwhile investment, whether given by a lawyer in our office or by a proponent of title insurance generally, will almost always cite “peace of mind” as the main reason for asserting the indispensability of title insurance.
“But how indispensable are we talking?” – the natural follow up question of course. And the answer tends to be: “it’s difficult to say, especially when it comes to assessing likelihood of being affected by fraud.” There are not very many sources of statistics which allow for accurate conclusions to be drawn from the little data available. In a recent article published by the Globe and Mail on October 13, 2009, author Karim Bardeesy wrote:
Data about mortgage fraud investigations or crimes is difficult to obtain in Canada; in some cases, they are never reported to police. First Canadian Title says its payout of claims related to fraud went from 43 per cent of total payouts in 2007, to 72 per cent in 2008.
It would appear then, at the very least, that title fraud does occur and that affirmative insurance coverage is available for homeowner’s not willing to run the risk of doing without the financial assistance likely necessary in order to afford the legal expenses associated with defending title.