selling your home Tag

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.

Selling Real Estate Property – A Simple Closing Checklist for Sellers

Please note all information shared herein is general information and not legal advice for which a lawyer must be retained. For more information about buying, selling or refinancing real estate in Kitchener-Waterloo or beyond, give us a call. 

Although buying a real estate property, in Kitchener, Waterloo or Cambridge regions or beyond involves multiple steps, selling your real estate also requires you to be involved and organized to ensure that your lawyer has all the requisite information to complete the transaction.

If you decide to retain VRS Law to act on your behalf on the sale of your property, here is an example of what we may seek to obtain from you immediately in order to ensure a smooth closing:

☐ 1. Fax or e-mail

If you or your real estate representative has not already done so, we will need you to fax or email us a copy of the offer or the agreement of purchase and sale.

Please also email us all of your contact information including all cell phone numbers and all email addresses.

☐ 2. Mortgage pay-out statement

As part of the closing process, it is our job to ensure that we obtain an up to date pay-out statement from your bank or mortgage company so that we may pay-out your mortgage from the sale proceeds and discharge the mortgage from the title of your home, which is currently registered as a lien.

Accordingly, to ensure that we have accurate information such as an account number or a mortgage loan number when we write to your bank for a discharge statement, we will need you to fax or email us a copy of your most recent mortgage statement for references purposes. (If you cannot find one, just provide us with a contact name and phone number of your banker).

☐ 3. Property tax bill

We also need to adjust for your property taxes, especially if you have prepaid your taxes for the year or if you have paid taxes for a time period past the closing date.

Accordingly, please fax us or email your most recent property tax bill.

NOTE: If you are currently on a pre-authorized payment plan with the City whereby they automatically debit your bank account for your tax installments, monthly or otherwise, you will need to cancel this at the appropriate time to avoid any additional charges.

☐ 4. Condo fees

If the property you are selling is a condominium unit, we will also be adjusting for your monthly common expense payment with the buyers.

However, as in the case of property taxes, if you have arranged to pay your maintenance fees on a pre-authorized payment basis, you will need to cancel this immediately. (In case you have given post-dated cheques to the Management Office, you will need to get these cheques back).

☐ 5. Contact utilities

You will need to contact the utility companies, such as hydro, water and gas departments to give them your forwarding address so that they may send you the final bill after the meter reading on the closing date.

☐ 6. Appointment to see us

Our office will be setting up an appointment with you – usually a few days before the closing date in order to attend at our office to review and sign all closing documents.

It is important to note that all those who are currently on the title to the home must come in to sign.

Furthermore, if only one of the spouses is the owner and both spouses reside in this property, then the non-owner spouse must also come in to our office to sign.

Finally, if one or all of the owners are not present to sign these documents and an individual under a Power of Attorney will be attending our office for signing, please provide us with the original copy of this Power of Attorney along with the contact information of the Attorney. For more information on this issue, please contact us.

☐ 7. Meeting before closing

It is typical for us to meet 1-2 days before the actual closing date.

Please remember to bring one (1) set of keys to the property with you to the meeting to leave with us so that we may, in turn, forward it to the buyer’s lawyer on closing.

Also, you will also need to bring two (2) pieces of identification.

☐ 8. Pick up funds

Once we have received the closing funds from the buyer’s lawyer on the closing day, we will electronically message the deed to the property to the other lawyer. It is only when he or she has registered this deed in the buyer’s name can we then consider this transaction as having closed.

And once the deal has closed, we will notify you immediately so that you may attend at our office to pick up the balance of the closing funds, which will be in the form of a certified cheque or a bank draft.

You may provide us with a VOID cheque from a major financial institution so we can directly deposit the funds to you after closing is complete. This usually takes place the day of closing or the morning of the following business day.