Title insurance is becoming increasingly promoted in real estate transactions as a hedge against potential defects in a properties title. Purchasing title insurance does provide financial coverage for certain types of defects, and as such is recommended as an important part of your due diligence in any property purchase. However, title insurance is not a replacement for a survey by a Professional Land Surveyor. Both are necessary and prudent components of a property purchase.
Most notably, it is important to understand that most title insurance policies do not typically cover boundary defects. Only a property survey by a Professional Land Surveyor can confirm the boundaries of the property you hope to purchase.
1. There are different types of title insurance
Title insurance exists in a variety of forms, and it is important to understand who is covered by the policy, what defects are included in the coverage, and under what circumstances those defects will be compensated. Two general types of policies can be distinguished: – “Lenders Policies” which provide protection for the financial institution issuing the mortgage, but which may provide no protection at all for the purchaser, and “Owners Policies”, which specifically extend protection to the purchaser.
In both cases the defects covered by a policy will vary with insurer. Typical policies may provide some form of coverage for fraud, for unpaid liens which may affect the transaction, for municipal bylaw compliance defects, and/or for certain types of encroachment with neighboring properties.
Policies can vary widely depending upon insurer and region, and purchasers are advised to review carefully the coverage offered to ensure it meets their needs.
2. Title insurance is not the same as home insurance
Title insurance does not provide coverage for defects or damage to your house or its contents. Ivo Winter, a lawyer in Arichat, N.S., who deals primarily in real estate law, says “People will call saying, ‘My roof leaked, my well failed, is that covered [by my title insurance]?'” The truth is, title insurance and home insurance protect against different risks. Both are prudent forms of protection. Title insurance deals with property entitlement, whilst home insurance covers loss or damage to your home and other structures on your property.
3. Title insurance has limitations
Like all forms of insurance, title insurance provides monetary compensation, after the fact. A title insurance policy may indemnify a home purchaser from certain defects in title, but it does nothing to guarantee title or cure defects that could have been revealed by a professional land surveyor. For example, a policy may compensate an owner for the cost or moving, altering, or removing a surface improvement on the property if it is found to be non-compliant with municipal by laws, or encroaching on neighboring property. However, money is not everything, and financial compensation may be a poor substitute when a home owner faces significant loss of enjoyment of their property because of these changes. Moreover, any associated decline in property value may not be covered by your policy. Finally, the stress and uncertainty of dealing with a compliance or encroachment defect can be considerable
As professional surveyors, we generally recommend homeowners get both a survey of their property, as well as title insurance, so you fully understand your property and are protected. Requiring a current land survey by a Professional Land Surveyor as a condition of purchase will confirm the boundaries of your property and identify any encroachment and compliance defects before the purchase closes. Typically, a survey can be completed for a fraction of your realtor’s fee. The additional cost and time are minor compared to the risk of encountering a significant boundary issue after the sale, impacting your finances and ability to fully enjoy your new home in the way you had intended.