Why Purchase Title Insurance?
Introduction
Title Insurance is an insurance product that originated in the United States that has become more popular in Canada as of late. It is not uncommon for lawyers in larger centers to require that clients purchase title insurance when buying a property. With that said, many lawyers in rural centers still close transactions without title insurance (unless title insurance is required by a 3rd party).
Title insurance protects against losses incurred as a result of unknown defects with respect to title as well as certain off-title matters. Policies are available for a one-time premium payable when your real estate transaction closes. Often policies protect anyone who inherits the property and certain family members if the property is transferred to them for nominal consideration. Some common risks covered by title insurers include:
certain defects that would have been revealed by an up-to-date survey;
municipal zoning by-laws violations;
existing work orders;
lack of legal access to the property;
existing liens against the title;
setback violations;
outstanding municipal utility charges (e.g. water accounts);
construction, builders, mechanics liens;
local improvement charges;
rights of possession in favor of a spouse or common-law partner; and
fraud, forgery and impersonation to the extent they affect the insured’s interest in title.
Survey Issues
Survey issues or defects are often a major concern for real estate transactions. Lawyers are not surveyors, and without an up-to-date survey, a lawyer cannot tell you if your house, or other building, is located within your property boundaries. The main concern is often that the property that is being purchased has buildings that are thought to be part of the transaction but are actually located outside, or a portion of the building is located outside of the lot boundaries. Similarly, someone else’s property could be encroaching on the property being purchased.
Generally, the best protection against survey issues or defects is for purchasers to obtain a new survey to confirm that there are no encroachments onto or by the property being purchased. Although this is the safest option, it may not always be practical to obtain a survey prior to closing. The standard Manitoba Real Estate Offer to Purchase does not provide for a delay in possession to obtain a survey. Surveys can take up to three weeks to complete and often cost $1,100 to $1,500 depending on the property. Although it is recommended that purchasers obtain a new survey, the truth is, in Manitoba most residential real estate transactions close without the purchaser ordering a new survey.
A second option is to order title insurance. Title insurance covers certain survey defects. One of the most important caveats to coverage for survey defects (and all other claims) is that the survey defect must not have been known prior to obtaining the coverage in question.
Building Permits
Title insurance often protects buyers where a government authority forces them to remove or remedy existing structures, or any portion thereof, other than a boundary wall or fence because: (1) it violates an existing zoning bylaw; or (2) any portion of it was built without obtaining a building permit from the proper government authority, provided a building permit was required at the time. As with many insurance products, there are certain limitations with respect to the amount of coverage available and the requirements that must be met in order to qualify.
Gap Coverage
Under the standard Manitoba Real Estate Offer to Purchase form, where a purchaser is purchasing property with a mortgage, and the funds are not received by the vendor on the date of possession, the vendor is entitled to be paid interest. Therefore, should the lawyer not be able to advance funds until registrations are complete, the purchasers would have to bring in interest to the signing appointment to cover possible interest payable to the vendor. An additional benefit of title insurance is that the purchaser’s lawyer does not need to hold funds until title has been registered. Depending on the length of registrations and the interest rate in question, this can result in substantial savings for the purchaser.
Taxes and Water Accounts
In Manitoba, municipalities are given the authority to include overdue water accounts on a property tax bill. Although it is often not an issue in many rural centers, water accounts have caused significant issues for purchasers. Purchasers within Manitoba have had large water accounts added to their taxes, to which the rural municipality/city seeks to collect from the purchaser. There have been multiple cases in Manitoba where the water accounts have exceeded $10,000; one such example was a water account totaling approximately $87,000. It is therefore recommended that purchasers purchase title insurance for water accounts.
Exclusions
Title insurance is not a home warranty product. It does not guarantee that the house and other improvements located on the property are well built. Nor does it guarantee that there are no defects that will need repair (e.g., leaking roof or foundation issues). Title insurance does not insure that appliances and home systems (HVAC etc.) will function properly or that structures constructed on the property comply with prior or current building code requirements.
DISCLAIMER: The information provided within this article is for general information purposes only and is not intended to be a substitute for legal and other professional advice. Legal and other professional advice is recommended. While every effort is made to ensure that the information provided is current and accurate, all persons involved in the preparation of this article disclaim any warranty as to the accuracy, currency, or absoluteness of the information. The author shall not be responsible nor liable for decisions resulting from, or related to, the information or opinions within the article. Further, title insurance coverage and requirements can vary depending on the location of the property involved. The information provided does not guarantee coverage. In the event that you wish to obtain coverage with respect to survey defects, utility accounts, taxes, building permits or any other available protections, please review the available title insurance provider policies to insure they offer the coverage desired.