The Importance of Title Insurance in Residential Real Estate: What you need to know.
When buying or selling a home, title insurance is a topic that often comes up and is important to understand. Some common questions we hear, and the answers to them, will help guide you in making informed decisions in your real estate transaction.
What is Title Insurance?
Title insurance is a one-time policy that offers protection for homeowners and lenders from unexpected issues that may arise with the property’s title after a transaction is completed. For homeowners, title insurance offers peace of mind by covering a range of potential problems that could affect ownership or the value of a property. Some benefits of a policy may include the following:
- Defense Against Legal Challenges: If your ownership is contested due to issues such as a forgery or other fraudulent claims, or undisclosed heirs, the insurance company has a duty to defend your title.
- Municipal Zoning and Compliance: The policy can cover violations of zoning laws or municipal bylaws, such as discovering that a previous owner added a deck without the necessary permits.
- Boundary and Survey Issues: Title insurance can protect against boundary disputes or encroachments that a current Real Property Report (RPR) may have revealed if it were obtained.
- Coverage During the Registration Gap: The policy offers protection during the period between submitting and registering documents at the land titles office, covering risks like unpaid property taxes or liens by a contractor.
- Simplifying real estate transactions: When a current RPR isn’t available, title insurance can offer peace of mind to buyers, and to lenders, allowing a purchase or refinance to occur in a timely fashion.
Can Title Insurance Protect Against Fraud and Forgery?
Yes, it can. Here’s an example:
Jeanne owns her home outright, with no mortgage on the property. John, a fraudster, gains access to Jeanne ‘s personal information and forges her signature on a mortgage application. The mortgage is approved and eventually registered against Jeanne’s home. When Jeanne discovers this, John has already taken the money and disappeared. Jeanne contacts her title insurance company and makes a claim on her policy for the legal fees and financial costs associated with removing the fraudulent mortgage from her title.
Does Title Insurance Address Issues with Zoning or Permits?
Yes, it can. Here’s an example:
After moving into his new home, Ben receives a notice from the city requiring him to obtain a permit for a sunroom that was added by the previous owner. After applying for the permit, the city’s inspection reveals that the sunroom doesn’t meet current building codes and must be either brought up to code or demolished. Title insurance could cover the costs associated with making the sunroom compliant or removing it, as well as any decrease in the property’s value.
Is Title Insurance Required in Residential Transactions?
In Alberta, title insurance is not a mandatory requirement in residential real estate transactions, however, the Buyer’s mortgage lender may require a policy be obtained for their benefit. Otherwise, the decision to purchase title insurance is up to the buyer. Obtaining title insurance does not relieve the seller from their general obligation to provide a current RPR, but if a current RPR is not available and the buyer still wishes to proceed with a purchase, the buyer may consider negotiating a credit from the seller to cover the cost of title insurance as part of their purchase agreement.
What Does Title Insurance Cost?
The cost of title insurance for a residential property varies, depending on the location, property type, and value. For example, a policy for a home valued under $500,000 may cost between $200 to $250, with marginal price increases for higher valued property.
Given the broad protection it can offer, title insurance can be an affordable and even essential tool for protection against unforeseen future problems with respect to your home’s title. It is a small investment that offers significant peace of mind, ensuring that your home remains your own, free from unexpected challenges.
At Clear Title Law, if you request, we will order a title policy for you at the time of your purchase or refinance transaction, or pursuant to your lender’s requirements. The cost of the policy is included as a disbursement, meaning you pay only the cost of the policy in addition to your regular fees and disbursements.
If you require further information or have a real estate transaction you require assistance with, reach out to Clear Title Law today. We are happy to help you build and protect your legacy.
