Title insurance will protect homebuyer

Valerie Brewis's $750,000 dream home nearly turned into a night-mare for its owner.

A few months after Brewis and her children moved in in 2009, a City of Toronto building inspector knocked on the front door and asked per-mission to inspect the house. One of the previous owners had made extensive renovations, but the work had not been given final approval. The inspection found that some of the work hadn't been done to code. More work was required to upgrade insulation, drainage, door heights and two outside decks.

The estimated cost was $60,000. "I called my lawyer, and it turned out that she had purchased title insurance for me, and it covered this," says Brewis, a single mother in her 50s. "Thank goodness that she did or I would have had to take out a second mortgage on my home."

The one-time insurance premium cost Brewis less than $900.

Title insurance protects a policy-holder from disputes over the ownership - or title - of his or her property. It also provides coverage for losses from work done before the purchase that is not in compliance with building regulations - as was the case with Brewis's home. Sub-standard work of this kind may not come to light in a typical home inspection.

Title insurance got its start in the U.S., where many states have poor land-registry systems and problems with property title frequently arise. Before it arrived in Canada in the early 1990s, real-estate lawyers did title searches for their clients to reveal undisclosed information about the property.

"They provided clients with an opinion that they had a good and marketable title on the property," notes Ray Leclair, Ontario real-estate lawyer and vice-president, public affairs at LawPRO, a Toronto-based insurance company that insures property purchasers and lenders. "The client who purchases title insurance is relying not on a lawyer's opinion but on the insurance policy."

Title insurance is often bought because many banks accept it as an alternative to a land survey in order to obtain a mortgage, says Usher.

"It's also an alternative to the cost of doing due diligence to safeguard against title problems such as finding that your house is on the neighbour's lot," he adds. Surveys, which show the property lines and the location of buildings on the lot, are not mandatory for the purchase of family homes in many provinces, and purchasers may opt to buy title insurance instead of a survey.

"This decision is often based on cost," he says. "Title insurance often costs less than a survey; its one-time premium is based on the value of the property. So if a survey costs $600 and the title-insurance premium is $300, the purchaser may opt for the latter. Of course, the really prudent purchaser would get a survey."