Guest Post: Exploring the Value of Residential Title Insurance

Title insurance provides owners and lenders of residential property with no-fault protection against many title risks inherent in real estate transactions.  

A title insurance policy protects against losses due to the following*:

• Someone else owns an interest in the insured’s title
• Zoning bylaw and setback noncompliance - to the extent that a governmental authority forces the removal of a structure** due to the noncompliance
• Forced removal by a governmental authority of a structure** built without a required building permit
• Existing work orders or strata/condominium fee arrears
• Real property tax or utility arrears (that have the ability to form a lien on title)
• Unmarketability of the insured land due to adverse matters that would be revealed by an up-to- date survey or due the violation of an existing zoning bylaw
• Many forms of title fraud, such as the registration of a fraudulent mortgage on title
• Invalidity, unenforceability or lack of priority of the insured mortgage against the title
• Gap coverage to protect against losses arising from intervening registrations taking place between closing and the registration of the insured transfer deed or mortgage

Title Insurance in Action: Claims Stories from Stewart Title’s Files 

Lack of a Final Inspection
The municipality had issued a building permit to a prior owner for the construction of an addition to the dwelling. Although the construction had been completed prior to the insureds’ purchase of the property, the final building inspection had not been performed by the local municipality. After closing, the insureds became aware of the lack of a final inspection when the municipality issued two work orders against their property. Stewart Title retained the services of an adjuster and engineer to determine the scope of work required in order to have the property pass a final inspection. Stewart Title paid approximately $80,000 to indemnify the insureds for their losses. Coverage was provided pursuant to covered risk 29 as the lack of the final inspection would have been revealed by a local authority search conducted prior to closing. While the work orders triggered the requirement to remediate the property to pass the final inspection and led to the covered loss, since those work orders were post closing (i.e. post policy date) the work order coverage was not the applicable covered risk.

Hidden Septic System
After purchasing their home, the insureds noticed a lingering, pungent odor emanating from under an addition on the back of the house. On investigation, they discovered that the addition was constructed without the previous owner obtaining a permit. The town issued an Order requiring the insureds to obtain a permit. Since the addition was illegally constructed on top of the septic system, the septic system had to be relocated. Stewart Title spent more than $130,000 to demolish the addition, reconstruct it and install a new septic system located at an appropriate distance from the home. Stewart also paid for alternative accommodation for the insureds during the remediation, as it was unsafe for them to remain in the home. Coverage for this claim was pursuant to covered risk 20(f) which involves the forced removal of a structure by a governmental authority because it was built without a required permit.  The issuance of the Order triggered the forced removal which led to the coverage being applicable.

A Title Insurance Policy Provides Security Both During and After the Real Estate Closing Process 

• Coverage is valid for the entire time the insured owns the property.
• A one-time premium, payable at the time of closing
• The Owner Policy also protects anyone who inherits the property or the insured’s spouse or child if the property is transferred to their spouse or child for nominal consideration
• The insurable amount is the purchase price of the property and will increase as the value of the property increases up to a maximum of 200%
• With a few exceptions (such as some of the title fraud coverage) for a matter to be covered, it must exist (but be unknown) at the policy date (the registration date of the insured transfer deed or mortgage)

Learn more at stewart.ca
* Please review the actual policy issued for full coverage details as this intended as general information only.  Policies are also subject to exceptions and exclusions and are underwritten based on the facts of each transaction.
** Coverage limits may exist with respect to fences and boundary wall
Each claim is adjudicated based on its own facts and the terms of the policy issued. These examples are for general illustration purposes only.

Note: The coverage outlined above is based on a Stewart Title Gold Residential Policy.  Coverage may vary for other title insurance providers.

Guest post by Erin Crocker. Erin is a lawyer with Stewart Title. She advises on title insurance options to manage the risks involved in real estate transactions. Erin believes that clients are best protected when legal professionals are at the forefront of real estate transactions.