What You Need to Know About Title Insurance and Property Claims
Title insurance is an essential tool for safeguarding property ownership, protecting both residential homeowners and investment property owners from financial losses caused by title disputes or defects. Whether you're purchasing a family home or expanding your real estate portfolio, understanding title insurance and its benefits is crucial to protecting your assets.
This guide explores the coverage provided by title insurance, its importance for Ontario property owners, and how it ensures peace of mind. If you ever have questions or need clarification, Gionet Fairley Wood LLP is just a phone call away.
What Is Title Insurance?
Title insurance protects property owners against financial losses stemming from issues related to the property’s title. Unlike other types of insurance, which typically address future risks, title insurance primarily covers issues that predate the purchase, such as unknown liens, encumbrances, or fraud.
Policies are often purchased during the property closing process, but existing property owners—including those who own investment properties—can also obtain title insurance post-close through specialized policies to ensure their ownership remains protected.
What Does Title Insurance Cover?
Title insurance offers extensive coverage, addressing a range of risks that could affect property ownership. It can cover legal costs associated with defending against land claims or errors in property descriptions. If there are clerical mistakes in official documentation or issues requiring the restoration of a property to its original state due to zoning violations, the insurance helps manage the financial impact.
In Ontario, title insurance policies often include coverage for legal disputes arising from land claims, construction liens caused by builders failing to pay contractors, or fraud cases where a property is registered under false pretenses. Additionally, title insurance helps maintain compliance with provincial by-laws and ensures that unpermitted structures on the property don’t lead to legal or financial repercussions.
Title insurance can protect against unknown risks, such as encroachments where a neighbour’s shed or garage extends onto the property due to an inaccurate survey. Title fraud, a growing concern, occurs when fraudsters use stolen identities to register fraudulent mortgages or claims on a property. Title insurance may also provide protection against unpaid property taxes or equipment rental fees left by the previous owner. Many title insurance policies also include protection for future issues that arise during ownership.
Fraud Prevention and Legal Remedies
Title fraud continues to rise in Canada, making title insurance an invaluable safeguard for property owners. Fraudsters may use stolen identities or falsified documents to manipulate property titles or mortgages, putting ownership at risk. Title insurance provides a critical safety net in such cases, covering legal fees and restoring ownership rights.
To minimize the risk of fraud, property owners should work closely with an experienced legal advocate during real estate transactions. Lawyers can identify potential red flags and ensure that the insurance policy provides comprehensive fraud coverage.
Most title insurance policies also include a “duty to defend” clause. This feature ensures that legal costs are covered if the owner needs to defend their title in court. By partnering with experienced legal professionals and staying vigilant, property owners can secure their investments against fraudulent activity.
Types of Title Insurance
Title insurance can be tailored to meet the needs of different property owners. Owner’s title insurance and lender’s title insurance, for example, serve distinct purposes. An owner’s policy protects against risks such as title defects, fraud, and unpaid taxes, ensuring clear ownership. A lender’s policy, on the other hand, safeguards the financial interests of the mortgage provider by addressing claims that could threaten the enforceability of the loan.
Investment property owners purchasing commercial real estate often face additional complexities that require specialized policies. Commercial title insurance addresses issues like building restrictions, zoning regulations, and construction liens. However, certain risks—such as environmental concerns or mineral rights—may not be included in standard policies and often require negotiation to secure full coverage. Working with an experienced commercial real estate lawyer in this case ensures that these potential gaps in coverage are addressed during the due diligence process.
Condominium owners, whether living in the unit or renting it out, also benefit from title insurance. They face unique risks such as improperly disclosed special assessments or disputes over parking spaces and storage lockers, as well as the risk of fraud from tenants illegally selling a rental property to unsuspecting homebuyers. In short, title insurance can be complicated which is why legal guidance helps to ensure these potential issues are adequately addressed in the policy to keep your assets well protected.
Common Reasons for Denial of Title Insurance Claims
While title insurance provides valuable protection, claims can be denied for several reasons such as:
Policy Exclusions. Policies often exclude issues like building permit violations, unpermitted work, or non-title defects. In Canada, structural defects are typically covered only if they impact the title, meaning disputes over boundaries or missing permits may not qualify.
Incomplete Documentation. Claims may be denied if homeowners fail to provide necessary evidence, such as proof of zoning violations, building permits, or surveys. Missing documents can halt the claims process entirely.
Dispute Over ‘Forced Removal’. Some policies strictly cover the forced removal of structures, not repairs. For example, stabilizing a wall might not qualify as forced removal, leading to a denial.
Steps to Take After a Denied Title Insurance Claim
If a claim is denied, these steps can help resolve the issue:
Review the Policy. Carefully read your policy and the denial letter to understand why the claim was rejected. Compare the reasons with your coverage details to identify any discrepancies.
Contact the Insurer. Request clarification from the insurer. Denials can sometimes result from incomplete information, and additional clarification may open alternative solutions, like arbitration.
Gather Supporting Documents. If missing documentation caused the denial, collect relevant evidence, such as surveys, photos, permits, or proof of expenses. Comprehensive records strengthen your appeal.
File an Appeal. Follow the insurer’s appeals process, submitting any additional evidence promptly. Many disputes can be resolved during this step without further escalation.
Legal Options After a Denial
When appeals fail, legal remedies may be necessary such as:
Litigation. If the denial involves complex issues, such as title fraud or unpermitted work, filing a lawsuit may be required. A real estate or litigation lawyer can guide you through the process.
Alternative Dispute Resolution (ADR). Methods like mediation or arbitration offer faster, less costly alternatives to court. Mediation involves negotiation with a neutral mediator, while arbitration results in a binding decision.
By understanding common reasons for denial and acting swiftly, homeowners can protect their investments and resolve disputes effectively.
Title Insurance Is Essential For Property Owners and Real Estate Investors. Be Sure You’re Covered
Title insurance is more than just another closing cost—it’s a vital layer of protection for property owners. Whether you’re a homeowner or an investment property owner, having title insurance safeguards you against potential title-related risks. At Gionet Fairley Wood LLP, we specialize in litigating complex cases, including those involving unpermitted construction, zoning violations, or disputes with title insurance providers. Our law firm can offer guidance through the appeals process, evidence gathering, and alternative dispute resolution methods such as mediation or arbitration.
With over 20 years of experience handling commercial and residential property disputes across Barrie, Simcoe County, and beyond, Gionet Fairley Wood LLP is here to provide trusted legal advice and representation for all title litigation matters. Contact us today to protect your property rights.
***The information provided in this blog is for general informational purposes only and should not be construed as legal advice. If you have legal questions, we strongly advise you to contact us.