What is title insurance and why does it matter when buying a home?

Buying a home in Canada involves many steps, from securing your mortgage to planning for closing costs. It’s easy to neglect taking a closer look at standard closing costs — and one cost you may encounter is title insurance.

Even though lenders typically require satisfactory title confirmation before your purchase closes, property issues from previous owners can surface years later. This is why having title insurance may be useful to lenders and buyers.

Here’s how title insurance can help protect you against potential property issues.

Title insurance is an insurance policy that protects you against issues related to your home’s title — meaning your legal right to own and use the property.

It differs from other types of insurance coverage, such as auto, travel and home or renter’s insurance. Those policies protect you against future events. But title insurance covers problems that happened in the past — even if they’re only discovered after you’ve purchased your home.

How you buy title insurance also differs. You purchase it once, at closing, and then the coverage stays in place for as long as you own the property. No other premiums need to be paid, ever, to maintain the policy — it’s a one-time cost.

When you buy a home, you typically pay for either the title company or a real estate lawyer to review public records related to the property — like previous mortgages, deeds and tax records. This is called a title search, and the goal is to find problems related to the title before closing.

However, even the most thorough title search can’t guarantee a clean title because problems with ownership aren’t always obvious at closing. If not recorded properly, some issues may come to light years later. These can include:

• Unresolved ownership disputes
• Liens filed against the property or a previous owner
• Errors or omissions in public records

If these sorts of issues pop up after closing, they can impact your right to use, sell or refinance your property. While title insurance doesn’t prevent these issues from happening, it can help protect you from the financial impact of certain title-related risks.

Coverage can vary depending on the policy insurer or title insurance company and your policy wording, including exclusions. However, most title insurance policies protect against a common set of risks, including the following:

Unknown title defects are errors or irregularities somewhere in the chain of ownership. They can make your title unclear or legally questionable — even when they’re discovered years after the fact.

Example: A previous transfer may have been signed by someone without the proper authority to sign or a mortgage discharge may have been incorrectly filed.  

A forged or fraudulently executed document anywhere in the chain of your property’s title can create questions about whether you legally own the property. 

Example: A mortgage taken out without a previous owner’s knowledge or a forged signature on a transfer document.

These are mistakes made at some point during the registration or recording of documents that make up your property’s official record. Even minor errors can lead to complications with ownership or future transactions.

Example: Incorrect lot dimensions in a registered survey or a misspelled name on a transfer document. 

A lien is a claim a creditor registers against the property to secure debt. If a lien tied to a previous property owner was never properly discharged, it can remain active and continue to be attached to the property.

Example: Outstanding property taxes or unpaid contractor invoices for previous renovations.

An encroachment occurs when a building, fence or other structure extends onto or crosses the property line without an agreement in place permitting it. This can lead to disputes and limit how you use the property.

Example: A shed extending into a neighbour’s yard or a driveway partially on adjoining property.

An easement is a legal right granted to a third party to use a portion of your property for a specific purpose. If that wasn’t disclosed at the time of closing, it can affect the land’s value or use. But some title insurance policies may cover certain undisclosed easement issues (subject to the policy wording, exceptions and exclusions). 

Example: A shared driveway agreement or a utility company’s right to run underground wiring across the property. 

Zoning or permit non-compliance can affect your ability to use, finance or sell the property, but some title insurance policies may cover certain related losses. So, if a structure, renovation or use doesn’t conform to local zoning bylaws or wasn’t built with the required permits, it could be found non-compliant — affecting your title and ownership rights, and creating issues to resolve.

Example: A basement finished without permits or a shed built too close to the property line in violation of local bylaws. 

In some cases, another party may come forward after you’ve taken ownership, and could one day assert a legal right to the property or a share of the property.

Example: A previous co-owner who’d been removed from the title without their consent. 

There are two main types of title insurance policies: a lender’s policy and an owner’s policy. Both can be in place on the same property at the same time.

A lender’s title insurance policy is designed to protect your mortgage lender against issues that could affect the property's title or the terms of your mortgage.

It’s worth knowing that even though your lender may require this policy as a condition of your mortgage, the cost of the premium is typically covered by you at closing. That’s why it’s important to understand what this type of policy does and doesn’t cover on your behalf.

If you want protection from potential title issues as a homeowner, you also need an owner’s policy. This protects your interests against title-related financial losses for as long as you own the property.

An owner’s policy is optional in most provinces. 

An online title search can range from $50 to $200, depending on the province or territory. If a real estate lawyer does the title search as part of closing, the cost is typically listed as a disbursement — a separate line item from the lawyer’s legal fee — on your closing statement. 

Although land registry records are online and accessible to the public in some provinces or territories, most lenders won’t accept a DIY title search. They typically require a formal title search completed by a legal professional or a title company.  

Even the most thorough title search has limits — it can only uncover what’s in the public record, and the public record isn’t always complete or accurate. For example, a title search may not catch recording errors, title fraud or forged documents. 

Title insurance helps bridge this gap by protecting you from issues that fall through the cracks of the public record or come to light after closing. In some cases, years later.

Whether you’re buying or refinancing a home, it’s a good idea to discuss title insurance with your real estate lawyer early in the process. If you have questions about title insurance or whether it’s required for your mortgage, your Scotiabank home financing advisor can help guide you.