31st July 2009
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Some Thoughts on Title Insurance by Kurt E. Schlachter

Over the last 10 years or so, the face of real estate transactions in Alberta has changed somewhat with the introduction of “Title Insurance.”  Title insurance has been in existence in the United States for decades, but has only been offered in Alberta for a relatively short period of time.  For varying reasons, more and more real estate deals are requiring a policy of title insurance be purchased, usually by the home-buyer.  The reasons for this are difficult and complex to explain, especially in a small article such as this.  However, it is helpful to at least have a basic understanding of what title insurance is, when it is most-often used, and what one needs to look out for when getting title insurance.

Title insurance is, at its most basic, a policy of insurance designed to protect a property owner against unknown defects in the title.  A defect in the title can be anything from a builder’s lien to an encroachment issue with the local municipality.  Title insurance is usually provided to protect both the home-buyer, and his or her bank, against these issues.

Title insurance is most often purchased because the bank/mortgage lender will require it before they lend you any money.  The reason for this is that they want to ensure that they will have “first charge” on your property.  What this means is that they want to ensure that should a lien, writ, caveat, or other instrument be registered against the land before they can register their mortgage, they will be protected against any loss that may create.

Another common reason that title insurance is purchased is because the Vendor has not provided a Real Property Report.  Under the standard Real Estate Purchase Contract used here in Alberta, the Vendor is required to provide a current Real Property Report with a certificate from the local municipality saying that the property conforms to all local land use bylaws.  Most real estate deals may be executed with title insurance in lieu of a Real Property Report, but this is hardly recommended.  Title insurance may protect you from any unknown problems with the property, but unless a claim is made, title insurance will not fix the problem.  What’s worse is that if you wish to sell the property, you may be forced to provide a Real Property Report to the new buyer in any event – and be forced to fix the problems that are discovered then.  If the Vendor has ordered a Real Property Report but will not receive it until after Closing, then it is common for the Vendor to pay for a policy of title insurance to allow the deal to close on time, yet still affording adequate protection to both the Buyer and his or her bank.

Title insurance usually costs a one-time fee of between $150-$250, depending on the insurer and the type of residential property being insured.  While lawyers have some basic information about what title insurance is, they are not agents for the insurance company and cannot give much advice as to specifics of your coverage.  If you have questions, you should ask the insurance company directly.  Lastly, it is imperative to note that if you know something is wrong with your property, you cannot purchase title insurance after the fact and expect to receive coverage.  Again, the primary qualification is that the defect in the title is “unknown.”

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Written by Kurt Schlachter