Title insurance

Title insurance companies provide insurance for buyers and mortgage lenders against several kinds of title risks that can affect real estate trades including survey errors, legal description errors, negligence, forgery, liens and other encumbrances. It also protects new and existing homeowners against title fraud, a type of real estate fraud. Here is how one governement agency describes this scenario:


 * "A fraudster steals your identity and takes out a mortgage on your property. He then disappears with the borrowed money, leaving you with a huge debt."

The insurance premium is paid once, costs in the several hundred dollars range, and the insurance "remains in place for as long as the insured has an interest in the property".

Title insurance is typically an optional insurance (with exceptions), so each customer must decide if they want it or not. The benefits of such insurance seem to vary considerably from province to province because of significant differences in title registration systems (see below).

Owner's versus lender's policies
There are two main types of title insurance:
 * Owner’s policy – Protects the property owner from various title-related losses that are listed in the insurance policy, for as long as the property is owned. An owner’s policy sets a maximum amount of coverage.
 * Lender’s policy – Protects the lender from losses in the event that the property’s mortgage is invalid or unenforceable. A lender’s policy usually provides coverage for the amount of the property’s mortgage.

If you purchase a property, your mortgage lender might require you (as the borrower) to buy a lender's policy. However that only protects the financial institution. So homeowners might want to look at an owners policy too.

Differences between provinces
The popularity of, and need for, title insurance varies widely by province.

Western Canada
The Western provinces operate under a Torrens title system. This reduces the need for title insurance. From the Wikipedia link:

"The Torrens title system operates on the principle of title by registration (i.e. the indefeasibility of a registered interest) rather than registration of title. The system does away with the need for a chain of title (i.e. tracing title through a series of documents). Each parcel of land is given a separate folio in the register and is identified by reference to a registered plan. The folio records the dimensions of the land and its boundaries, the names of the registered proprietors, and any legal interests that affect title to the land. The State guarantees title and is usually supported by a compensation scheme for those who lose their title due to its operation."

The BC Land Title Records and Services (LTRS) writes that:
 * "In the past 10 years, the land title system received over 8.5 million registration transactions, yet there were only two instances where a homeowner lost title due to fraud. Both affected homeowners received compensation from the Assurance Fund for the amount of their losses."

Ontario
According to an industry source, "90 percent of all residential real estate transactions in Ontario" are covered by title insurance.

In Ontario, title insurance represents one more cost burden for closing, but there may be some cost savings enjoyed because title insurance was purchased. For example, an Ontario resident you would not need to pay for these otherwise required expenses:


 * Zoning compliance certificate
 * Tax certificate
 * Certificates from various utilities companies, such as electricity, water and gas
 * Law Society levy

This cost savings can amount to between one half to two thirds of the title insurance cost, depending on the title insurance provider and the area involved.

Quebec
In Quebec, title insurance is largely unknown and only 4% of homeowers have it.

The Association professionnelle des notaires du Québec writes that Quebec's land title system is reliable, so that title insurance has "little use" in the province, unlike in the US.

Nevertheless, brokers selling this insurance argue that it is worth it, even if only to cover fraud cases.

When to buy
Many people buy title insurance when they purchase the property, often through a lawyer or notary.

However, this insurance can also be purchased by existing homeownwers. For example, according to some reports, "fraudsters like to go after homes that are free and clear of mortgages as it increases the potential payoff". So the year you finish paying your mortgage might be a good time to consider title insurance.

Title fraud
If your main concern is title fraud, there are ways to decrease the risk, whether you buy title insurance or not. Just like car insurance can’t prevent road accidents, title insurance can’t prevent title fraud from happening, it just helps you deal with the consequences.

Title fraud typically starts with identity theft. Identity theft can happen because the fraudster has obtained your personal information directly, through “mail or email interception, phone scams and phishing attacks”. , or the good old trash search. The personal information may also be stolen from an organization.

So anything you can do to prevent identity theft will lower the risk of title fraud. This includes hanging up quickly on suspicious phone calls, shredding documents with personal information, etc. See the Canadian Anti-Fraud Centre and Protection from frauds and scams for more tips.

Transferability
Title insurance policies can extend to "your heirs through a will, to a spouse in the event of a divorce", presumably at no cost. They can also be transferred to the next title holder, for a fee, or to a bank or financial institution for mortgage purposes, once.

Differences in policies
Toronto real estate lawyer Bruce McKenna suggest purchasers go with the insurance provider recommended by their lawyer, implying that policies from different providers are similar. The author of a Toronto Star article (who is a director for the Law Society who owns the company that offers TitlePLUS), however, thinks that there is a significant difference among title insurers:


 * "Conventional title insurance policies cover a lawyer's negligence only if the mistake relates to a loss that is listed in the policy as an insured risk. In contrast, only TitlePLUS routinely makes available comprehensive coverage for the legal services provided by a lawyer, in addition to the listed risks. (...) What this means is that in a real estate transaction, if a lawyer makes an error amounting to negligence, the legal services coverage in a TitlePLUS policy protects the homeowner, even if the lawyer's mistake is not related to one of the itemized title risks insured by the policy."

Potential pitfalls
On the surface, title insurance looks great.

The bigger picture is not necessarily so bright, as ultimately the integrity of the Canadian title system is at risk. The concept of insuring title was developed in the U. S. in response to the need to offer clear titles in a myriad of systems of title registration choked by error, ambiguity and lack of cohesiveness.

The Canadian system does not have the same need, and long-term, its traditional efficiency will likely be affected. Properties insured without search or survey can become subject to running errors. Resolution of such errors can only be corrected by a full search and detailed survey which, in effect, is our current and traditional system. Simply put, title insurance at its best can be a cost-effective tool and at its worst a time consuming administrative nightmare.

Carriers are also, to date, vague on restrictions and eligibility with one of the larger carriers asserting that any home found eligible by a relocation company would qualify as insurable.

Title fraud

 * Financial Consumer Agency of Canada, Real estate fraud
 * Canadian Bankers Association, How to protect yourself from title fraud

Title insurance

 * Financial Services Commission of Ontario, Understanding Title Insurance
 * Real Estate Council of Alberta (RECA), Title Insurance
 * Autorité des Marchés Financiers (Québec), Title Insurance