The harsh economics of home buying today demand that you protect yourself as much as possible from the surprise expenses ahead.
Title insurance costs a few hundred dollars on average, but it can save you thousands if you find out years from now that a structure on your property is partly on your neighbour’s property, if the previous owners failed to pay their property tax or water bills in full, if fraudsters gain title to your house and more. Most home buyers today get title insurance for themselves when purchasing a home, but there are still holdouts. There may also be owners who paid for this coverage, but forgot about it.
Title insurance is a way to de-stress your finances after buying into a market where both prices and interest rates are on a rising trend. You’re protecting yourself against at least a few of the surprise, budget-busting expenses that can afflict owners at any time.
Among the most common claims on title insurance are matters related to property tax and utility bills left unpaid by the sellers of a home. But Mark Weisleder of RealEstateLawyers.ca says the risk of title fraud is the most important reason to have this coverage.
Title fraud happens when thieves fraudulently gain title to your house and then take out a new mortgage on the property that you’re responsible for. “It’s $30,000 to fix a title that’s been stolen,” Mr. Weisleder said.
Title insurance has been available for decades, but it took off in the mid-2000s, after mortgage fraud started to become more of a problem. Today, it’s typically available to home buyers through the real estate lawyers handling their purchase. Mr. Weisleder said legal fees might cost about $1,600 to $1,700 in total when buying, with title insurance on top of that.
The one-time cost for title insurance will typically come in around $300 to $400 in most cities. The average-priced detached home in Toronto or Vancouver might be closer to $800 to $900 or so. Coverage applies as long as you own the house and remains in force if the home is transferred to a spouse or child.
When buying any financial product, a standard question is how much compensation the seller receives and whether this payment has an influence on the product chosen. Depending on the province, rules or codes of conduct for lawyers may stipulate that they are not entitled to accept fees for selling title insurance, or that they can only accept fees under certain circumstances (for example, if they disclose the fees to clients).
Mr. Weisleder said some insurers provide what he termed a “counsel fee” to lawyers to cover the costs related to ordering and processing title insurance. But payments to lawyers by title insurers are considered controversial by some in the legal world and at least one firm has opted out.
“We absolutely do not do that,” said Lisa Weinstein, vice-president of TitlePLUS, a title insurer owned indirectly by the Law Society of Ontario. “Lawyers are not compensated if they order a TitlePLUS policy for a client.”
Lenders often require home buyers to buy title insurance, but these policies are designed to protect the interest of the bank or mortgage firm rather than the homeowner. Buyers who want coverage for themselves must purchase their own policy .
Ms. Weinstein said TitlePLUS sells bundled title insurance for both lenders and borrowers and it covers such things as legal services (in case of error by your lawyer) and fraud that occurs both before and after the buyer takes title on a home. TitlePLUS policies cover as much as a 200-per-cent increase in the value of your home in the years you own it and additional coverage can be requested.
Another economic argument for title insurance is that can be cheaper than having your lawyer do exhaustive searches to make sure there are no issues related to the title on your home. Title insurance may also remove the need to spend $1,000 to $2,000 or so on a land survey.
However, Ms. Weinstein cautions that title insurance is not a replacement for a land survey.
“I think it’s important for the lawyer to explain to the client that, yes, title insurance may cover you for survey issues, but you may want a survey anyway because it provides good information about your property,” Ms. Weinstein said.
Title insurance is also available to existing owners who didn’t buy it when they closed the deal on their home. The appeal is the same as it is to new buyers: Spend a few hundred to potentially save thousands.
Rob Carrick