Title Insurance

 

What is title insurance?
Title insurance works like a standard insurance policy. It protects against future discoveries about a property, some title-related and some non-title-related. It is a form of indemnity insurance for a mortgaged property that covers the loss of an interest in a property due to discovered legal defects.

As an insurance product, title insurance doesn’t “fix” problems. It provides insurance coverage for them. In other words, the title insurer has no obligation to do anything until a problem actually arises. When a problem does arise, the insurer can pay damages or actually fix the problem.

Title insurance operates on a no-fault basis. No-fault insurance is when the insurance company indemnifies the policy holder for losses, regardless of fault in the incident.

What does title insurance cover?

Types of title insurance:
Owner's title insurance: This is a policy where either the buyer or seller may pay the insurance premiums to protect the buyer's equity in the property. This title insurance may provide coverage for title and some non-title issues. The purchaser of the insurance must disclose any known issues or defects regarding the property’s title or non-title items to the insurer prior to purchasing a policy. If you’re considering buying title insurance, make sure you know the covered risks, as well as the limitations and exclusions to coverage.

Lender’s title insurance: The borrower usually pays for lender’s title insurance even though it is for the sole benefit of the mortgage lender. This type of title insurance gives protection to the lender with respect to the priority, validity and enforceability of the mortgage. If your lender requires a title insurance policy as part of the transaction, that policy is for the benefit of the lender and will not cover you as the buyer.

Is title insurance the same as a Real Property Report (RPR)?
No. An RPR is a legal document an Alberta Land Surveyor prepares that clearly illustrates the boundaries of a property and the location of improvements, such as buildings, garages, sheds and fences, relative to property boundaries. An RPR with a stamp of municipal compliance shows a home buyer what he or she is buying and that it complies with municipal regulations. Title insurance is an insurance policy that protects against certain unknowns. Though they are not the same, both can provide some protection for a buyer.

Comparing title insurance and Real Property Reports

Title Insurance Real Property Reports
Not required in Alberta Standard residential purchase contract in Alberta requires the seller or the seller's lawyer to give an RPR to the buyer or buyer's lawyer
Is an insurance product that cannot fix problems, but rather gives financial protection if problems arise in the future Provides information about property compliance issues upfront, so issues can be dealt with before closing (an RPR with a stamp of municipal compliance is critical protection for all parties in a real estate transaction)
May cover internal non-compliance issues that do not show on an RPR (such as a lack of building permits or failure to meet building code on renovations) and may cover hidden deficiencies (such as underground storage tanks) Does not provide any insurance coverage/financial protection – the goal is to avoid problems arising later by having an RPR with a stamp of municipal compliance

 

For more information on Real Property Reports, check out RECA’s consumer tip.

Examples: How can title insurance help

 

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