In most provinces, when you purchase a new home your lawyer or notary can facilitate the purchase of a title insurance policy on your behalf. If you are an existing homeowner and you are interested in purchasing title insurance particularly to protect you against title fraud, you may be able to purchase your policy in some provinces through an insurance broker or directly from the title insurers’ website.
Residential Title Insurance
Title insurance has a fixed price based on the value of the property. While rates may vary between title insurance providers, homeowners pay a one-time premium when they first purchase their policy. There are no annual or monthly premiums. The policy stays in effect for as long as the insured retains an interest in the property. Furthermore, there is no deductible payable in the no-fault claims process.
Homeowners insurance, or home insurance, is often confused with title insurance. They both deal with protecting a property, but in very different ways. Here are some basic differences between them:
|Residential Title Insurance||Home Insurance|
|Protects your title (your ownership of the property)||Protects the structures and items on your property|
|Coverage includes encroachment, fraud, compliance to fix unpermitted work||Coverage includes leaking roof, fire, infestation, flood damage|
|One-time premium||Monthly premium|
|Coverage lasts as long as you have an interest in the property||Coverage lasts as long as you make premium payments|
There are two types of title insurance: a lender policy and an owner policy. They often get confused with each other since they’re both referred to as “title insurance.”
Many lenders include title insurance as a best practice when closing on a mortgage. By lowering their risk with title insurance, lenders are able to offer a lower rate than they’d be able to without it. A lender policy also makes the closing process smoother, which benefits both the homeowner and the lender.
A homeowner policy offers protection against a variety of covered risks such as, zoning defects, work orders against a property, fraud and more.
Because most people buy their title insurance during the home closing process, and only need to make one payment, it can be easy to forget if you purchased it or not. Here are three easy steps to know if you’re covered:
- Check your closing documents. Remember to verify the policy type, even if you see title insurance in the closing documents you got from your real estate lawyer or notary—it could just be the lender policy.
- Ask your real estate lawyer or notary. They would have been the one to order your homeowner policy if you got it at purchase, so they can find out directly from the insurance provider for you.
- If you are an existing homeowner and want to get title insurance, you may be able to purchase a policy in some provinces through an insurance broker or directly from the title insurers’ website.
No it’s not. A lawyer or notary’s E&O insurance covers them directly, whereas title insurance provides direct coverage for the consumer. E&O insurance only provides limited protection for homeowners.
In the case of an error or omission by your legal professional, as the homeowner you would have to prove their negligence in court to make a successful claim against their E&O insurer. This is not required with residential title insurance; the provider has the duty to defend and offers a simple no-fault, no deductible claims process.
Title insurance offers additional protection for the homeowner and lender outside of the legal professional’s due diligence on a real estate transaction such as:
- coverage for losses relating to improvements added without building permits;
- work orders against a property;
- non-compliance with agreements on title;
- real estate fraud;
- condominium special assessments;
- liens from unpaid taxes;
- outstanding property taxes;
- zoning defects; and
- errors in the public record.
Title insurance protects for risks that may occur after the closing of the purchase or mortgage transaction. Most notably, it covers title fraud that can occur at any time during the ownership of a property.
Finally, if your legal professional has participated in the fraud, their E&O insurer will not cover the claim. Instead, legal societies have a compensation fund in cases of fraudulent activities or wilful misconduct by its members. These “defalcation” funds are voluntary, and many have limits on the value of compensation per claim.
Residential Title Fraud
Title insurance provides a no-fault, no deductible protection against title fraud for new and existing homeowners to protect them from fraudsters who steal title to their home, and to lenders who are duped into advancing money. The expertise of the title insurer can be invaluable in steering the insured through the process of reclaiming their title.
While everyone who owns a house is susceptible to title fraud, fraudsters often target homes with some of the following characteristics:
- The mortgage has been paid off;
- The home is rented;
- The homeowner(s) travel frequently or spend a length of time out of the country;
- The home is vacant;
- The homeowner is a victim of identity theft;
- The homeowner(s) are involved in transactions related to the matrimonial home in a divorce;
- The home has recently been purchased, transferred, mortgaged or re-mortgaged.
In the unfortunate event that you are the victim of title fraud, provincial land title offices have assurance funds that may provide for compensation of the defrauded homeowner, however there are no guarantees.
To access these funds, a victim would have to apply and prove either through a hearing process or through the court system that they are the victim of fraud. This process involves considerable resources and expenses for the victim.
In contrast, when a title insurance policy holder is the victim of fraud, they benefit from the title insurer’s duty to defend. Furthermore, the insured does not incur any additional costs, as title insurance provides a no-fault, no deductible claims process. And finally, the insured receives the benefit of the title insurer’s expertise on how to reclaim title to their property.
Regulation of Mortgage and Title Insurers
Title insurers, being insurance companies in the nature of property and casualty insurance companies, are carefully regulated in every Canadian jurisdiction.
A federally licensed title insurance company is subject to regulatory supervision by the federal Office of the Superintendent of Financial Institutions (“OSFI”), as well as the financial institution regulator in each province. MTIIAC members are subject to the federal Insurance Companies Act and its regulations, the Insurance Acts in each province with their regulations, and the various statutes in each jurisdictions setting out restrictions on agency and brokerage arrangements, consumer protection and privacy.
All federally regulated title insurance companies are required to submit quarterly filings on premiums and claims paid. This information is publicly available from OSFI.
Title insurers are not members of the Insurance Bureau of Canada (IBC). There is no classification of membership for title insurers.
What processes are in place to handle complaints by a member of the public about a mortgage or title insurance product or process?
Member companies have Complaints Handling Procedures posted on their websites.
As well member companies are members of the General Insurance OmbudService (“GIO”)
General Insurance OmbudService
All federally licensed insurers are also required to be members of a third-party complaint resolution system. Most federally licensed insurers and several provincially incorporated insurers are members of General Insurance OmbudService (GIO), an independent, regionally based, consumer dispute resolution system for the insurance industry.
If your matter is not resolved with your insurer’s complaint liaison officer, ask for a final position letter and call GIO. GIO helps you and your insurance company to resolve your differences in a fair, independent and impartial environment. GIO works to resolve disputes on claims-related matters and interpretation of policy coverage.
There are some areas in which GIO does not become involved. These include:
- insurance product pricing and business decisions;
- settlement procedures established by legislation; and
- matters that have been, or are, before the courts.
For more information about GIO and how to access its services, visit www.giocanada.org.
Title insurers have been operating in every province and territory across Canada since the late 1990’s and there has been no negative impact on the public land registry system, mortgage lending or land conveyancing systems. Title insurers have issued millions of policies and there has been no detrimental effect to the public land registry systems in Canada.
One of the purposes of title insurance is to provide coverage for risks in title and survey defects. Title insurers rely on the integrity of the system in order to underwrite risk. Title insurers have a fundamental interest in ensuring the systems they rely upon are accurate and reliable, and the maintenance of provincial registries is essential to avoid increase in claims.
The situation in the United States is distinctly different than in Canada. Title insurance has been a standard product in many states since the turn of the last century. Title records are kept by the local county courthouse where title is “recorded” and not “registered.”
Generally, conveyancing practices developed differently west of the Mississippi River from the eastern states. In the states west of the Mississippi, a title company performs a significant component of the real estate conveyance, activities that are traditionally performed by the lawyer or notary in Canada. The fees for these conveyancing services performed by American title companies are often included in the bill with fees for the title insurance policy. Title insurers developed their own data source for title information to reduce the duplicative searches and paperwork at the county courthouses. These databases are often referred to as “title plants.”
States east of the Mississippi have generally relied on lawyers to conduct their title searches and conveyances. With the advent of securitization of mortgages and their reselling in the investment market by government-sanctioned entities, like Freddie-Mac and Fannie Mae, title insurance arrived east of the Mississippi in the 1970s. Lawyers play a very active role in distribution of title insurance and rely on title insurers for accurate up-to-date title search information. In a number of states, like Connecticut only lawyers can sell title insurance policies by law.
As such there are significant differences between states in conveyancing practices and in the parties involved in a real estate purchase transaction.