Title Insurance Explained

What Is Title Insurance?

Title insurance is a one-time insurance policy that protects property owners and their lenders against losses related to the property's title or ownership. Unlike other types of insurance that protect against future events, title insurance protects against problems that already exist but may not have been discovered at the time of purchase.

In Ontario, title insurance has become the standard practice for residential real estate transactions. Most mortgage lenders require it as a condition of financing, and it has largely replaced the need for an up-to-date survey of the property.

What Title Insurance Covers

A standard residential title insurance policy covers a wide range of issues that could affect your ownership or use of the property:

• Title fraud and forgery: Protects you if someone fraudulently sells or mortgages your property
• Existing liens and encumbrances: Covers undisclosed claims against the property, such as unpaid taxes, utility charges, or construction liens
• Survey and boundary issues: Covers encroachments, setback violations, or boundary disputes that a survey would have revealed
• Zoning and building permit violations: Protects against losses if existing structures violate zoning bylaws or were built without proper permits
• Missing heirs and estate issues: Covers claims from unknown heirs or issues with the chain of title
• Errors in public records: Protects against mistakes in land registry documents
• Unmarketability of title: Covers you if a title defect prevents you from selling the property in the future

How Much Does It Cost?

Title insurance is one of the most affordable closing costs. A residential owner's policy typically costs between $250 and $500 as a one-time premium paid at closing. The exact cost depends on the purchase price and the insurance provider. There are no ongoing premiums or renewal fees. The policy remains in effect for as long as you own the property.

Your lender may also require a separate lender's policy, which protects their mortgage interest. In many cases, the lender's policy is included in the owner's policy at no additional cost, or it may add $50 to $100. Your lawyer will arrange the title insurance and the premium is included in your closing statement.

Title Insurance vs. a Survey

Before title insurance became widespread, buyers needed an up-to-date survey (or surveyor's real property report) to confirm the property boundaries, identify encroachments, and ensure structures were within setback requirements. A new survey costs $1,500 to $3,000 or more and takes several weeks to complete.

Title insurance covers many of the same risks a survey would reveal, at a fraction of the cost and without the wait time. This is why most buyers and lenders now rely on title insurance instead of a survey. However, title insurance is not a replacement for a survey in all situations. If you plan to build a fence, add an addition, or make significant changes near property boundaries, you may still want a survey to know exactly where your property lines are.

When Title Insurance Protects You

Title insurance may seem like a formality, but it provides real protection in situations that are more common than you might think:

• A previous owner built a deck that extends onto the neighbour's property, and the neighbour demands it be removed
• An unpaid contractor files a construction lien against the property for work done before you purchased it
• A municipal search reveals that a renovation by a prior owner was done without a building permit and does not meet code
• A fraudster attempts to register a mortgage against your property using forged documents
• Property tax arrears from a previous owner surface after you have closed

Without title insurance, resolving any of these issues would come entirely out of your own pocket, potentially costing thousands or even tens of thousands of dollars.

How to Make a Claim

If you discover a title issue after closing, contact your title insurance company directly to file a claim. The Financial Consumer Agency of Canada (FCAC) provides guidance on insurance claims and consumer rights. You will typically need to provide documentation of the issue and any correspondence related to it. The insurer will investigate the claim and, if it falls within the policy's coverage, will either resolve the issue or compensate you for your loss.

Your real estate lawyer can also assist with the claims process and can advise whether a particular issue is covered under your policy. Keep your title insurance policy documents in a safe place along with your other property records so they are accessible if you ever need them.