Title Insurance in a Real Estate Closing
Title Insurance and it’s use in Real Estate
So you are finally set to close on a real estate property and move in to your new home. You have hired a real estate agent to help you find the property within your price range, in the neighbourhood of your choice and the offer has been accepted. You have decided on the lawyer you wish to work with and are eager to know how much all of this is going to cost. You find out from your real estate lawyer that title insurance will attract a fee of a couple hundred dollars. Given that this bumps up your costs during closing, you want to know what a title insurance policy is all about and how it works. Let’s find out…
What title insurance is NOT:
Let’s dis-spell some misconceptions about title insurance from the start. Title insurers stress the fact that their policies are certainly not intended to be any form of a home warranty and should not be misunderstood as such. For example, it does not speak to whether the property is well built or that the roof or foundation is intact and certainly does not provide coverage for the appliances purchased as part of the transaction. Neither does it provide a guarantee that you will be able to change the current use of the property.
Title Insurance – what is it?
When you purchase a real estate property, you obtain “title” to the property through a process under which the previous owner transfers their ownership to you. This is done by way of registration of a document called the Transfer/Deed under the Land Titles system. According to some accounts, title insurance has been around in the US since 1868 and was used to provide protection to purchasers for unanticipated title problems. However, it has picked up popularity in Canada in recent years where it is obtained virtually in all residential and a large majority of commercial real estate transactions. The focus under a title insurance policy is not to guarantee title, but instead is on providing compensation or damages depending on the loss or claim.
When completing a real estate purchase transaction, lawyers will routinely order a title insurance policy that provides protection for both the buyer as well as the mortgage lender if the property is mortgaged. The main reason is so that the policy holders have protection from certain risks that are present whenever real estate transactions are involved.
When title insurance is ordered by the law firm, the company charges a premium for the policy. The premium amount is lower if the transaction is a ‘cash’ transaction in that it does not involve a mortgage. This premium will be higher for properties that are of higher value and the amount of insurance is the actual purchase price of the property. The amount of the premium may vary depending on a number of factors some of which may include the type of property, the purchase price, the registered amount of the mortgage etc.
An important point about title insurance is that once it is ordered, the protection remains for as long as the insured party is on title without the need for renewals or monthly premiums. Once the deal has closed and your lawyer has ordered the title insurance, coverage will continue under the owner policy for as long as the same buyer owns the property.
Risks covered by Title Insurance:
In brief, according to the Financial Services Commission of Ontario, some of the most important coverages which may be available under a title insurance policy are as follows:
- Protection from defects in title – such issues may hinder ability to have clear rights to the property
- Conflicting ownership interests
- Liens that exist on title – for example, a previous owner has outstanding mortgages that remain on title or other liens such as condominium liens.
- Encroachment issues – where an existing structure on land needs to be removed because it sits partly on a neighbour’s property.
- Errors in surveys and public records
- Title Fraud
Essentially, title insurance ordered by your real estate lawyer will provide owners (and banks, if the property is subject to a mortgage and a lender policy is ordered) with a comprehensive and no-fault protection against title risks involved in a transaction.
Perhaps the most popular reason to have title insurance is to cover title fraud. As a general example, this may involve a situation where a fraudster deals with or transfers the title to your home without your knowledge. This may be by way of transferring title to him or herself by stealing your personal information and forging documents. The second step may involve the fraudster registering a mortgage on the title to your home and absconding with the funds. Of course, as the years go by, the fraudsters seem to get more and more advanced in their approach. Hence the need for the protection that title insurance provides. Here, the innocent party (insured) may later discover that the title to his or her property is defective when an unknown mortgage lender contacts them about the default in payment. Luckily, the protection offered continues after closing in that the individual may seek compensation from the title insurer due to the fraud.
In the real estate world, policies obtained for title insurance may cover different type of risks depending on the type of property one is purchasing. For example, there may be certain items covered on a residential policy jacket that would be excluded in a commercial policy. Typically, commercial policies require even more due diligence due to higher cost of properties and the increased cost of coverage.
Other risks that may be covered:
- Title defects such as liens, executions against title, encroachment issues
- Arrears in taxes
- Arrears in hydro and gas
- Executions against prior owners
- Fire department work orders against the property
- Hydro work orders against the property
- Compliance with conservation authorities
- Access limitations
- Planning Act contraventions
- Fraud, forgery, or false impersonation where they effect the insured’s interest on title
Exclusions from coverage:
When there are risks that are difficult to quantify, title insurers will typically exclude such from coverage. That being said, here is a small list of some of the standard exclusions that may be listed under your insurance policy:
- Environmental matters (termites, infestations, UFFI, underground storage tanks, soil contamination, leakage of water etc.)
- Land claims – Native or aboriginal
- Post-closing expropriations
- Future use in the event the owner changes the use of property
- Default on the owner’s existing mortgage
- Legality of rents under the rent legislation
- Risks known to or agreed by the insured but not shared with the title insurer
- Septic system functionality
Also, a title insurer will require a multi-unit endorsement for a property containing 2-6 units (including basement apartments) in order to provide additional coverage.
Conclusion:
Title Insurance serves as a lower cost alternative of closing a real estate law transaction and all parties, including the buyer and lender may be put to ease if a certain item is covered under the policy. It is often more cost effective to order a policy than to conduct off-title searches and / or obtain a new survey which can add up quickly. It is also known to be a time saver in the sense that it reduces the type and number of searches a law office has to conduct. As a no-fault compensation provider, it is no wonder title insurance has, in a sense, taken over real estate conveyancing and is a go-to choice for both law firms and home owners and lenders.
For further questions or information about your real estate transaction in Kitchener-Waterloo or surrounding regions, please contact our office.
Read MoreCondominum Law: Some tips and tricks for your real estate purchase
Condominium Law: Buying real estate in Kitchener-Waterloo and surrounding regions
It is interesting to see how many people tend to gravitate towards purchasing a condominium as opposed to a semi-detached or detached home. Whether you have just started shopping for real estate or have already signed an Agreement of Purchase and Sale, one thing is for sure: as a potential buyer, it is a good idea to understand what it is that you are buying, especially when it comes to buying into something like the condominium, knowing condominimum law it very important.
It is no surprise that condominiums are a popular choice for those looking to get into the real estate market. This could be due to a variety of factors such as affordability (thanks to the sky-rocketing real estate prices over the last few years), availability or simply being able to ditch your shovel and lawnmower by having a property management company handle the exterior maintenance of the property. In our real estate law practice, we often close transactions involving condominiums and deal with buyers from all walks of life. However, many people buying a condominium for the first time do not know what is generally involved and what the key attributes of this form of ownership are. As a result, we share some tidbits:
Source of Condominium Law:
It is the Condominium Act, 1998 which governs condominium corporations and under which we find details with respect to how to create a condominium, the structure involved, the rules and regulations, the requirements with respect to owners, tenants, management and many other facets. The main documents that govern the condominium are the declaration and description, the by-laws, and the rules.
In a sense, when you are buying a condominium, you are buying a form of legal ownership in your unit along with an undivided interest in the common elements. This means that typically, the portion of your unit entitles you to exclusive use and ownership. This use is limited within the boundaries of this unit. Your condominium also comprises of areas known as common elements which may include lobby areas, garage for parking, facilities shared between the unit owners such as a gym, party room and the like. These areas may be said to be owned in a communal manner for use of all of the unit owners.
Boundaries and Common Expenses
You may wonder exactly what you own within the condominium complex. To find that out, one must reference the declaration and relevant condominium documents to know the boundaries of their units and the areas that make up the common elements. The declaration will also tell you the percentage of maintenance fees or common expenses that each unit owner is responsible for. It is important to note that in many condominiums, a unit owner will pay for his or her pro- rated share of the expenses paid to maintain the common elements. This could include things like paying for maintenance, development, security, insurance, etc. Although it may sound obvious but generally, the more amenities a condominium has, the more likely it is to have higher common expenses. Typically, a high-rise will have many common element areas whereas a townhouse complex is likely to have less. The real estate scene in Kitchener-Waterloo appears to have many condominiums set up as townhouses and less high-rise buildings which are more commonly seen in and around Toronto. However, as we can see with the development projects that have started as well as those that are in the pipeline, the local skyline is set to adjust even more.
Some condominiums may have parking, storage and lockers set up as separate units just like the physical space in which the buyer is going to own. However, in other condominiums, these areas may be designated as exclusive use for the by virtue of the buyer’s ownership of the unit.
There are multiple types of condominiums that one may come across. You may have a common elements condominium, vacant land condominiums, standard condominiums, phased condominiums etc. They all derive their authority from the Condominium Act, 1998.
Who runs this operation?
Typically, a Board of Directors is elected which makes decisions related to operations as well as money management. The Board may hire a management company to see the day-to-day operations. Some smaller condominiums may not employ a property manager due to budgetary constraints and choose to be more hands on.
The Board also plays a role in ensuring compliance of the rules and regulations in a condominium with the underlying idea being that through collective endeavour, all owners contribute to a good overall standard. The rules and regulations should be reviewed to ensure that you are comfortable with them and to identify any lifestyle concerns.
What is a Status Certificate?
Imagine you were buying shares of a company (publicly listed or private), would you want to know its’ financial merits and ensure it is not involved in any legal trouble? If the answer is yes, one may want to consider making an offer conditional to review of a status certificate by a lawyer for 3-5 days from receipt by the buyer. Either party (buyer or seller – usually with the help of the property manager or their respective real estate agent) can order the status certificate.
In a nutshell, it provides a snapshot of the legal and financial health of the Condominium Corporation. It is often a very large document consisting of multiple components some of which have been mentioned above. It will tell us whether the condominium is facing major financial challenges (i.e. have there been any special assessments imposed recently on top of the current common expenses – which means more money out of your pocket as the potential buyer). It will also disclose if there are any lawsuits that have been filed or any other litigation that the condominium is involved in and whether there is adequate insurance in place.
Further, it will also show details with respect to what kind of money is available for major repairs and replacements. If the condominium you’re buying into is dipping into the negative, it may lead to concerns for the possibility of higher common expenses. This is where the reserve fund study comes in which provides an indication from another professional (engineers) on the likelihood of major repairs. It’s a pretty good idea to let a lawyer look at this before you sign off on the dotted line.
Conclusion
All in all, becoming a homeowner (whether owning a condominium or a house) is major step. It is a good idea to know what it is that you’re buying and have an understanding of what is involved. Be sure to consult a professional to guide you every step of the way. For further questions about your real estate transaction, contact a Kitchener-Waterloo real estate lawyer.
Read More
A buyer’s guide to closing a real estate deal
TYPICAL ROLE OF A BUYER IN A REAL ESTATE PURCHASE TRANSACTION
A typical real estate transaction involves multiple parties which may include: the buyer and seller, the real estate agent, mortgage broker, representative of the bank / lender, insurance companies, as well as lawyers on both ends of the deal – one for the seller and another for the buyer. Once you have selected the lawyer to handle the ‘closing’ of your transaction, there are a series of steps that your lawyer will undertake on your behalf in order to complete the transaction. This will involve you and your lawyer to collect information from the above-mentioned parties. Therefore, as a buyer, it is critical that you play an active role in providing information and being accessible to the lawyer to ensure that your closing is completed in a timely fashion.
So what could the lawyer expect of you as the buyer? The information below offers an insight into the sort of things you would likely be involved with:
Provide your lawyers information to:
- Your Realtor: The real estate agent requires details of the lawyer’s office including the name, address, email, phone and fax number in order to send the agreement of purchase and sale to the lawyer’s office.
- Your Bank representative or Mortgage broker: The representative will forward the necessary ‘instructions’ to your lawyer to prepare and review mortgage related documents.
It is important that your lawyer’s information is passed on to the above-mentioned parties as soon as possible to avoid any difficulties or delays or to avoid missing important timelines.
Be in contact with your lawyer:
- It is not uncommon that your phone number and other contact information changes before your final closing date. You must keep this up to date with the lawyer’s office to make yourself accessible for information and / or setting up a meeting. If you provide email as a method of contact, be sure you access it frequently.
- Provide your lawyer’s office details with respect to your intended use of the property. Is it an investment property? Will you be occupying the property? Are you a first time buyer?
Provide any other paperwork to your lawyer:
- If you are buying a condominium, you may have a set amount of time in which your lawyer is to review the status certificate. It is your responsibility to ensure that the lawyer receives a copy of the status certificate and has sufficient time for review. Your realtor may be able to assist in gathering the status certificate and delivering it to your lawyer.
- Your lawyer will review your agreement and also answer any questions you may have regarding the closing process.
Order Fire Insurance:
- Fire insurance is a requirement when purchasing a home (as opposed to a condominium – unless specified). Your lawyer will advise you of the particulars of how to set it up. You will have to speak to an insurance company / representative in order to set it up.
Preparation for meeting with Lawyer:
- It is typical for a potential buyer to actually meet with a lawyer in person for the first time right before closing. Prior to that, you will be in touch with the law office several times by phone to provide or receive information.
- Prior to meeting with your lawyer, you will be required to provide certain information such as: parties who are taking title to the property; the manner in which the parties will take title; name and date of birth details; spousal consent particulars; fire insurance set up; and any other information required to complete your transaction. As a result, keeping continual contact and being accessible is very important.
- Your lawyer’s office will also provide you a draft trust ledger prior to your meeting. Assuming the lawyer has all mortgage instructions on time, he or she will know how much money will be advanced to the trust account prior to closing. The remainder of the ledger will include figures such as legal fees & disbursements, land transfer tax figures as well as adjustments from the seller’s lawyers. The lawyer will also specify the amount you are required to bring in at the meeting (usually by way of a bank draft) along with details of who it is to be made payable to.
- You will also be required to bring with you items such as: 2 pieces of valid and unexpired IDs; Fire Insurance particulars (if not already provided); Bank Draft; and any other necessary documents.
Meeting:
- The meeting will usually take anywhere from 30 minutes to 1 hour – depending on the transaction. Your lawyer will go through all the documents including those required by your lender.
- The meeting is usually held a few days prior to the closing date and will be scheduled in advance.
- This is a great opportunity to ask any further questions.
Pick-up your keys!
- Once registration is complete, the lawyer will contact you to come in to pick up the keys to your new home ! Note that keys will only be released once everything is fully registered.
