Should I get title insurance in place of a real property report?
If possible, it is still best to have a current Real Property Report with compliance when buying or selling a home to ensure all property buildings are within the municipality guidelines. If an RPR is not an option, title insurance is a good substitute.
Title insurance without a Real Property Report and compliance is acceptable to most major mortgage lenders and will often provide coverage for the lender for known defects. Unlike other insurance products, there is only one premium paid at the time of closing which provides coverage to the owner throughout their ownership of the property. It also offers a wide range of protection for issues that are not covered by an RPR and compliance.
Title Insurance Benefits include
- Intervening registrations – Anything registered on title between the time the lawyer submits to the Land Titles Office and the time of actual registration.
- Unknown Liens, encumbrances, tax arrears or defects in the title to a property.
- Unknown special assessments on condos that were implemented prior to closing.
- If an RPR or compliance is not obtained, it covers any defects that would have been revealed by an accurate up-to-date RPR and compliance.
- The forced removal of an existing structure with the exception of a boundary wall or fence where there is only limited coverage
- Forced compliance with work orders or deficiencies on an existing building permit.
- Loss of priority due to matters such as construction liens, agreements on a title, and other mortgages.
- Another party claims an interest in the property.
- Protection against title defects or encumbrances that were unknown or undiscovered at the time of closing.
- Protection against identity theft, mortgage fraud, and fraud against the title.
- Cost savings. Typically, the cost for title insurance is far less than the cost of an RPR and compliance and is available on short notice
Drawbacks of Title Insurance
- It is an insurance product. This means when an issue arises, it may not be covered by the policy and if there is coverage the insurer can decide the method used to solve the issue which may not be the preferred choice of the insured party.
- There is a lack of disclosure and certainty, especially for the buyer, at the time of closing. If an issue is discovered later, it is more difficult to pursue the seller for a fix after closing.
- There is no coverage for known defects, except for some coverage for the lender only.
- There must be some form of enforcement or government action to trigger coverage in most cases. For example, the previous owner did renovations that do not meet the requirements of the building permit or development permit. The title insurance will only pay for the cost to fix these deficiencies if there is some form of enforcement and not simply due to the deficiencies.
- It does not guarantee that all structures will remain ‘as is’. For example, if the municipality mandates the alteration or destruction of a certain structure, the title insurance company may pay for the cost of appealing that decision however they cannot guarantee a favourable result.
- The coverage of Title Insurance is for the buyer only (not the seller).
- If a buyer or their lawyer purchases a lender only policy that is sufficient to close the deal however the buyer still has no title insurance protection.
- There is no specific protection or coverage for the seller. If a claim is made and the title insurance company determines it is the seller who created the deficiency, the title insurance company can pursue the seller for recovery of the costs they have paid.
- In most instances, title insurance only defers the need to deal with a particular issue. It does not solve it. The issues will still be there when the property is resold.
- Title insurance cannot be passed onto a new owner. Every new owner must purchase their own policy.