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Why might you consider buying title insurance?

Title insurance refers to a policy that you purchase when you are buying a commercial or residential property. The policy provides coverage for any losses you might incur because there is an unknown problem with your title.

Usually, title insurance is purchased with a single premium payment and a payout only occurs if a title issue arises at some point in time while you own or are paying a mortgage on the property. Because title insurance can also benefit your lender, many lenders require that it be part of any purchase and mortgage agreement.

Title insurance can cover the remaining cost of a mortgage, reimburse you for the value of your home or cover costs associated with correcting an issue of title or ownership. Every title insurance policy is different, though, so you should always read the fine print when considering these options.

Commonly, title insurance covers situations where losses occur because of title defects, fraud, existing but unknown liens on the property, errors in public records or surveys and encroachment issues. Title defects and errors in public records could result in an unknown person having previous rights to a property. This would mean that the seller was not actually legally able to sell you the property in the first place.

Fraud might occur when a seller or other party knowingly sells a property without having clear rights to it. These cases are different from cases where the seller doesn't realize they don't have rights; in a title fraud case, the seller might make a fraudulent title document.

Encroachment issues occur when you purchase a property and later discover that the property lines were incorrect or that a building on your property encroaches upon a neighboring property. You might have to remove the building or remodel it to avoid encroachment.

All of these issues can be expensive, which is why title insurance is important. Title insurance is just one way to protect yourself when buying real estate; working with a legal professional to ensure all documents and contracts are in order can also help you avoid future expenses related to your purchase.

Source: Financial Services Commission of Ontario, "Understanding Title Insurance," accessed Dec. 04, 2015

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Yigal Rifkind, Barrister & Solicitor Attorney

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