Title insurance is designed to shield property buyers and lenders from potential losses or legal fees that could arise from disputes over the property title after the purchase has been completed. Unlike other insurance types that offer protection from future events, title insurance provides coverage for risks and discrepancies that already exist but have not yet been discovered. Whether you’re a first-time home buyer or a seasoned investor, understanding the protections afforded by title insurance can ensure your property rights are secure, providing peace of mind in what is often the largest financial transaction of one’s life.
Common Risks Covered by Title Insurance
Title insurance is designed to shield property owners and lenders from risks that are often hidden and only come to light after the completion of a transaction. Here’s a closer look at some of the most common risks that title insurance covers:
Forged Documents and Fraud
Real estate markets are not immune to deceitful activities. Forged deeds, falsified records, or fraudulent claims can severely impact the rightful ownership of a property. Title insurance protects against losses that result from such illegal activities, ensuring the legitimacy of the property’s title.
Liens Against the Property
Previous owners may have left behind a trail of unpaid debts that could be attached to the property, such as mortgages, tax liens, or judgments. These financial encumbrances can affect the new owner’s legal title to the property. Title insurance ensures that pre-existing liens are identified and resolved before the transaction, protecting the new owner from unexpected financial burdens.
Easements or Encroachments
An undisclosed easement might grant others the right to use a portion of the property, while encroachments (such as a neighbour’s fence or structure built partially on the property) can lead to disputes and require resolution. Title insurance covers the risk of existing but undiscovered easements and encroachments, providing a safeguard against potential disputes and financial losses.
Disputes Over Property Boundaries
Property boundaries are often assumed to be clear and undisputed. However, inaccuracies in surveys or records can lead to disputes over where one property ends and another begins. These disputes can be costly and time-consuming to resolve. Title insurance covers the cost of defending property boundaries and compensates for any losses that arise from such disputes.
Pre-existing Violations of Subdivision Laws or Zoning Ordinances
Occasionally, properties may be in violation of local subdivision laws or zoning ordinances without the new owner’s knowledge. Such violations can result in fines, required modifications to the property, or other penalties. Title insurance protects against losses arising from these pre-existing legal violations, ensuring buyers are not unexpectedly penalized for issues they were unaware of at the time of purchase.
What Title Insurance Does Not Cover
While title insurance provides extensive protection against various risks associated with past events and discrepancies related to the property’s title, there are certain limitations to its coverage. Here are some exclusions typically found in title insurance policies:
Future Events and Title Defects
Title insurance offers protection against unknown defects or issues existing at the time of purchase. It does not cover events or disputes that arise after the policy’s effective date, including future liens or encumbrances that may be placed on the property.
Zoning and Land Use Issues
Title insurance generally does not cover problems related to zoning or land use regulations. If the property does not comply with local zoning laws or has restrictions on how it can be used, these issues are typically not protected under a standard title insurance policy.
Environmental Restrictions and Conditions
Title insurance does not cover environmental conditions or restrictions, such as contamination, soil problems, or wetlands restrictions. Buyers interested in understanding the environmental risks associated with a property should consider obtaining an environmental assessment or inspection before purchase.
Rights of Parties in Possession
If someone is occupying the property under an unrecorded lease or claim of possession not disclosed in public records or known at the time of purchase, title insurance may not cover disputes with these occupants.
Native Land Claims
In some jurisdictions in Canada, native or indigenous land claims may not be covered by title insurance. These claims can be complex and require specialized legal consideration beyond the scope of a standard policy.
Specific Governmental Actions
Title insurance does not protect against certain governmental actions, such as eminent domain or future legal changes that affect property use. While it might protect against undisclosed legal restrictions in place at the time of purchase, it cannot guard against new laws or regulations enacted afterward.
Known Defects and Disclosures
Title insurance does not cover defects known to the buyer at the time of purchase or explicitly disclosed in the purchase agreement. The insurance protects against unknown risks, not issues identified and accepted by the buyer.
Don’t let the potential pitfalls of property ownership catch you off guard. Contact a RE/MAX agent today to discuss how title insurance can secure your real estate investment and give you the confidence and peace of mind you deserve.
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