It depends… There are 2 different types of title insurance in Canada:
- Owner Title Insurance
- Lender’s Title Insurance
In Canada, both owner’s title insurance and lender’s title insurance play important roles in protecting different parties involved in a real estate transaction.
- Purpose and Coverage
- Cost and Payment
- Claims and Payouts
- Optional vs. Required
- Is Title Insurance Transferrable?
- Key Points About Title Insurance and Mortgage Switching
- Summary
Purpose and Coverage
Owner’s Title Insurance:
- Who it Protects: The property owner.
- Purpose: This policy protects the owner against various title-related risks that could affect their ownership of the property. It covers issues such as unknown title defects (e.g., errors in public records, forgery, fraud, encroachments, or missing heirs) that could result in financial loss or even loss of the property.
- Coverage: The coverage typically lasts for as long as the owner or their heirs have an interest in the property. It’s a one-time purchase that provides ongoing protection against title risks that may arise after the purchase.
Lender’s Title Insurance:
- Who it Protects: The mortgage lender (not the property owner).
- Purpose: This policy protects the lender’s interest in the property, ensuring that the mortgage is the first lien on the property. It covers the lender against losses due to title defects that could affect the enforceability of the mortgage or reduce the lender’s ability to recover the loan amount in case of foreclosure.
- Coverage: The coverage typically lasts for the duration of the mortgage. If the mortgage is paid off, refinanced, or the lender changes, the policy is no longer in effect.
Cost and Payment
Owner’s Title Insurance:
- Who Pays: The property owner (buyer) typically pays for this policy, although it’s often optional and not required by law.
- Cost: It is a one-time premium paid at the time of purchase, and the cost can vary depending on the property value, location, and the insurer. Once purchased, no further premiums are required.
Lender’s Title Insurance:
- Who Pays: The property owner usually pays for the lender’s title insurance as part of the closing costs. In some cases, the lender might cover the cost, but it’s less common.
- Cost: Like the owner’s policy, it’s a one-time premium paid at closing. The cost is often lower than an owner’s policy because it only covers the lender’s interest in the property.
Claims and Payouts
Owner’s Title Insurance:
- Claims: If a title defect arises that affects the owner’s ability to sell or use the property, or if a third party claims an interest in the property, the owner can file a claim. The insurance company will cover legal fees to defend the owner’s title and compensate for any loss in property value or loss of the property itself.
- Payouts: Any payouts are made to the property owner, up to the policy amount (which is usually the purchase price of the property).
Lender’s Title Insurance:
- Claims: If a title issue affects the lender’s security interest in the property (e.g., the mortgage is not enforceable, or a prior lien is discovered), the lender can file a claim.
- Payouts: Any payouts are made to the lender to cover the outstanding loan amount, not to the property owner. The policy only covers the lender’s loss.
Optional vs. Required
Owner’s Title Insurance:
- Optional: It is optional for property owners to purchase, but it is highly recommended as it offers significant protection for the owner’s investment in the property.
Lender’s Title Insurance:
- Required: It is typically required by most mortgage lenders as a condition of the loan. The lender wants to ensure that their investment is protected against any title issues that could affect their ability to recover the loan amount.
Is Title Insurance Transferrable?
Title insurance is typically not transferable when switching mortgages. Title insurance is specific to the transaction for which it was originally issued and covers the property owner and the lender (if there is a lender’s policy) based on the circumstances at the time of that transaction.
However, as the offerings in the market are always changing, there is now a company that does title transfers (contact Allen Ehlert for details) for lender title insurance. Lender title insurance transfers through this firm can be done when refinancing your home and when switching/transferring to another lender as part of the refinancing or switching/transferring process.
While title transfers can be done with related parties (children, grandchildren, parents, grandparents,, and siblings) and common law relationships.
Title transfers can’t be done for:
- Separation/divorce
- Purchases
- Arms-length transactions of unrelated parties
- Removal of deceased individuals where the owners held title as tenants in common.
To discover the cost of title transfer, please contact Allen Ehlert.
Key Points About Title Insurance and Mortgage Switching
Owner’s Title Insurance:
If you, as the property owner, purchased an owner’s title insurance policy, that policy remains in effect for as long as you own the property. It’s a one-time purchase that provides coverage for you against title-related issues that may arise during your ownership, regardless of changes in your mortgage.
Lender’s Title Insurance:
A lender’s title insurance policy protects the lender’s interest in the property and is required by most lenders when you first obtain a mortgage. If you switch mortgages (i.e., refinance or move your mortgage to a different lender), the new lender will usually require a new lender’s title insurance policy to be issued, as the original policy is tied to the original mortgage transaction and lender. The new lender will not be covered under the old policy.
Cost Implications:
When switching mortgages, the new lender may require you to purchase a new lender’s title insurance policy. This could incur additional costs, although some lenders might include this cost in the mortgage fees or allow it to be paid separately.
Coverage Continuity:
Your existing owner’s title insurance continues to protect you as the property owner, but the lender’s policy does not transfer to the new lender. Therefore, the new lender needs its own policy to cover potential risks.
Summary
Owner’s Title Insurance protects the property owner from title defects and is optional but recommended. It’s a one-time cost that covers the owner for as long as they own the property.
Lender’s Title Insurance protects the lender’s financial interest in the property and is required by most lenders. It also involves a one-time cost and covers the lender for the duration of the mortgage.
Both types of insurance serve different purposes but work together to provide comprehensive protection for both the owner and the lender in a real estate transaction.
See Also:
FCT: The Ultimate Guide to Title Insurance
Title Insurance: Lender and Owner Protection
If you’re considering switching mortgages, it’s advisable to consult with Allen Ehlert or a real estate lawyer to understand the implications, including any potential costs associated with obtaining new title insurance.
