Understanding Title Insurance: What It Is and How It Works in Real Estate Transactions

What is title insurance and why is it important in real estate transactions? Contact TDJ Law for help from a real estate lawyer in Ottawa.

Written By

Todd Ji, real estate lawyer

Todd Ji

Published On

May 20, 2023


Title insurance is a crucial component of any real estate transaction, yet it remains one of the most misunderstood aspects of buying a home. Many homebuyers mistakenly believe that once they receive the deed to their new property, they own the property free and clear of any liens or encumbrances. However, that is not always the case, and that is where title insurance comes in. 

Title insurance is a type of insurance policy that protects the ownership of your property. It is designed to protect both the homebuyer and the lender from any issues that might arise with the title to the property. Essentially, title insurance ensures that the property you are buying has a clear title and that you will be able to take ownership of it without any legal complications.

What is title insurance?

To understand title insurance, you must first understand what title means. Title refers to the legal ownership of a property, and it includes the right to use and occupy the property, as well as the right to sell or transfer the property.

Title insurance is a policy that protects the ownership of a property against any defects or claims that may arise after the property has been purchased. The insurance policy is issued after a thorough search of public records has been conducted to ensure that the title is clear and free of any liens or encumbrances.

There are two types of title insurance policies: owner’s policies and lender’s policies. An owner’s policy protects the homeowner, while a lender’s policy protects the lender. Most lenders require borrowers to purchase a lender’s policy, but it is optional for the homeowner to purchase an owner’s policy.

Why do you need title insurance?

Common title problems include errors in public records, undisclosed heirs, forged documents, and mistakes in the legal description of the property. These issues can lead to legal disputes, which can be costly and time-consuming to resolve.

Errors in public records, undisclosed heirs, forged documents, and mistakes in the legal description of the property are just a few examples of the many issues that can arise with a title. These problems can lead to legal disputes and can be costly and time-consuming to resolve.

Having a real estate lawyer on your side can be invaluable when it comes to addressing title issues. A lawyer can review the title search and examination results to identify any potential issues and provide guidance on how to resolve them. They can also assist with negotiating with the other parties involved in the transaction, such as the seller or the lender, to ensure that any title defects are resolved before the sale is completed.

Benefits of having title insurance

Title insurance provides several benefits to homebuyers, including protection against the costs associated with legal disputes and the costs of resolving any title defects. It also provides peace of mind knowing that the title has been thoroughly examined and any potential issues have been addressed.

Title claims that could affect your transaction

Title claims can include issues such as unpaid property taxes, liens on the property, undisclosed heirs, and forged documents. These issues can cause a delay in the transfer of ownership or even result in the loss of the property.

How does title insurance work?

Title search

Before issuing a title insurance policy, a title search is conducted to ensure that the title is clear and free of any liens or encumbrances. The title search includes an examination of public records such as deeds, mortgages, and court records.

Title examination

Once the title search is complete, a title examiner reviews the results to identify any potential issues with the title. If any issues are found, they must be resolved before the title insurance policy can be issued.

Issuance of title insurance policy

Once the title search and examination have been completed, and any potential issues have been resolved, the title insurance policy is issued. The policy protects the homeowner and the lender from any future title disputes or defects.

What does title insurance cover?

Covered risks

Title insurance covers a wide range of risks, including any liens or encumbrances on the property, undisclosed heirs, errors in public records, and other issues that could arise with the title.

Exclusions from coverage

There are some exclusions from coverage, such as issues that arise after the policy is issued, claims arising from environmental hazards, and claims arising from zoning or land use laws.

Additional coverage options are available to homeowners, such as extended coverage policies, which offer additional protection against certain risks. These policies may cover issues such as boundary disputes, easements, and building permit violations.

How much does title insurance cost?

The cost of title insurance is typically paid for by the buyer or the lender. In some cases, the seller may also pay for the title insurance.

Several factors can affect the cost of title insurance, including the purchase price of the property, the location of the property, and the type of policy being purchased. The cost of title insurance is typically a one-time fee that is paid at the time of closing.

It is essential to shop around and compare title insurance rates from different providers to ensure that you are getting the best deal. Rates can vary significantly between providers, so it is important to do your research and compare quotes before purchasing title insurance. An experienced real estate lawyer in Ottawa will be able to advise you on what the best rates for title insurance might be, and how to choose the right one for your property.

Get in touch With TDJ Law to Help You Through Your Real Estate Transaction and Get Title Insurance

If you're planning to buy or sell a property in Ottawa, or if you need help with title insurance, get in touch with TDJ Law. We can guide you through the complexities of real estate transactions and help you avoid any legal pitfalls. We provide a wide range of legal services, including title searches, title insurance, and document preparation, to ensure that your transaction is completed without errors and you can rest assured no title claims will affect it. Get in touch with TDJ Law now to get a quote, and learn more about how we can help you.