We highly recommend the use of title insurance in all real estate transactions. For a one-time fee, it provides coverage for the entire length of your ownership of the property. Policies can even be purchased by existing homeowners that provide coverage back to the time of purchase.
As the name implies, title insurance covers many of the risks associated with maintaining secure title to your property. For a one-time fee, some of the insured risks on residential properties include:
- Violations of municipal zoning bylaws
- Encroachments onto an adjoining property (other than fences and boundary walls)
- Setback violations
- Unknown or undisclosed realty tax arrears
- Existing work orders
- Lack of legal access to the property
- Someone else owns an interest in your title
- Existing liens against the title
- Condominium assessments that were unknown at the time of purchase
- Hidden deficiencies such as underground storage tanks
- Unregistered utility easements
- Unmarketability of the property due to matters that would have been revealed by an up-to-date Real Property Report (RPR)
- Fraud, forgery, and false impersonation to the extent they affect the validity of title
- In our view, the fraud protection for the lifetime of your ownership justifies the premium you pay for the policy. All the other coverage is an added bonus.
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So which is better, an RPR or Title Insurance?
Title Insurance allows a closing to take place in a timely fashion without investigating the status of the property, the buildings and the permits. It also permits closing without registration at Land Titles as any issues that arise during the registration process will be covered by the Title Insurance policy. When there is a rush to get a deal closed, Title Insurance can provide an effective solution.
When time permits, which is typically the case, an RPR offers clarity over a certain defined list of issues. For example, you will know whether the fence or garage eaves encroaches onto the neighboring property or one of their structures encroaches onto your new property. You will also know whether permits have been obtained for all exterior structures such as decks, carports, hot tubs, garages, and the house itself.
Where encroachments exist or permits have not been obtained, the purchaser can make sure the seller looks after these issues as part of the closing process.
Title insurance insures against these same issues, however, it does not fix them. If a purchaser discovers that there are no building permits for a structure long after closing, it may be difficult or impossible to pursue the seller to rectify this deficiency. The purchaser will then be left with the burden of curing this deficiency at their expense before they sell the property. Even though title insurance will cover the cost, there can still be a great deal of work and uncertainty for you to deal with.
Title insurance offers the ability to close on a real estate deal and satisfy all the requirements of the mortgage lender without the cost and potential time delays of obtaining an RPR. If deficiencies are discovered after the closing date, the title insurance typically covers the cost of rectifying unknown deficiencies that are subsequently discovered.
Title insurance also allows closing where there are known deficiencies the parties simply wish to defer, rather than bring to the attention of the municipality. For example, we recently dealt with a house where a small decorative fence encroached onto city property. The cost of obtaining an Encroachment Agreement from the city exceeded $30,000. Both parties agreed they would rather not pay the $30,000 fee. Instead, they closed with title insurance even though the insurance excluded this known defect. This still allowed the buyer enjoyment of the fence without payment of the $30,000 fee. The buyer agreed to accept the risk that sometime in the future the city may require payment of the fee or removal of the fence.
Title insurance also covers many risks that are not touched by an RPR. For example, existing work orders for interior renovations are covered by title insurance. Interior renovations are not touched by RPRs. As another example, a policy recently paid for the cost of relocating a septic tank that was partly under the neighbour’s property. Again, this would not have been included in an RPR. Obviously, fraud coverage for the lifetime of the ownership is not covered by an RPR either.