Title insurance is usually an afterthought for people getting a mortgage. But it’s becoming more of a decision point since so many lenders now require it.
The purpose of title insurance is to protect you if there’s a problem with your title. Those problems can turn into expensive nightmares in the small chance that you encounter them. Examples include ownership disputes on your property, title fraud, un-discharged liens, encroachments, zoning issues, survey problems, property tax arrears and so on.
Real estate lawyer Bob Aaron wrote a recent overview of title insurance here. He says, “Most real estate lawyers today regard title insurance as a critical component…and will usually not close a purchase without it.”
And no, lawyers don’t get big kickbacks for pushing title insurance. Aarons says lawyers "are not permitted to get referral fees/commissions" on title insurance. Lawyers recommend it because it protects the homeowner, limits the lawyer’s liability and makes closing more efficient.
There are two broad types of title insurance:
- Homeowner policies, which:
- Cover the homeowner
- Last as long as you own the property
- Are priced based on the property value
- Lender policies, which:
- Protect the lender’s interest in your mortgage
- Last as long as you have your mortgage
- Are priced based on the mortgage size
The cost of title insurance varies widely depending on the location, type and value of the transaction. It starts at roughly $150-$350, but can climb from there. Here’s a calculator to estimate policy cost from FCT (First Canadian Title), Canada’s top provider of title insurance.
Once you pay for title insurance, you can often avoid paying for it again. Here are some cases where that’s true:
- You purchase a homeowner policy and stay in your home
(Homeowner policies generally cover your property for as long as you own it.)
- You pick a lender that doesn't require a lender title policy
(Many do, but some don't.)
- You refinance and choose a lender that pays for its own mortgage-only title policy
(A broker can tell you which lenders do this. Keep in mind, a lender-only policy doesn't protect you.)
- You switch lenders and your existing policy is "ported” to the new lender
(If it can't be ported, many lenders will pay the new title insurance premium for you on a straightforward switch.)
Title insurance can be switched to a new lender only under certain conditions, says Reta Coburn, president of FNF Canada, the Canadian division of the world’s largest title insurance organization. “Loan policies for lenders are transferable when the original mortgage is not being discharged from title and is simply being transferred by way of a registered assignment of mortgage,” she says.
The stipulations are that, "The original mortgage security must remain unchanged and no additional funds can be advanced, unless provided for under the original mortgage terms and conditions. The date of policy is the date of registration of the original mortgage, so the new lender assumes the coverage under the policy of the original lender at the date of that mortgage registration."
Two related notes:
- The loan-to-value cannot increase if a title policy is being transferred to a new lender.
- Lenders don’t usually accept assignments of collateral charges, so for practical purposes a title policy on a collateral charge mortgage isn’t generally transferrable.
Eric Haslett, LLB, VP Residential Title Insurance at FCT, adds that: “Provided the new lender agrees to take an assignment of the existing mortgage, the…title insurance policy will follow the mortgage to the new lender and no additional title insurance premium is charged.”
But lenders don’t always accept a mortgage that a prior lender has registered. That’s because, as Haslett puts it, “The new lender is stuck with whatever the language is in the existing lender’s mortgage documents.”
And here’s an interesting side note:
Haslett says, “New lenders often don’t request assignments from an existing lender because (doing so) provides that lender an opportunity to…retain the borrower.” If the old mortgage is discharged and a new mortgage is registered, however, “The existing lender often doesn’t know about the borrower moving until it’s too late.”
In addition, when clients change lenders using a refinance instead of an assignment, the party requesting the discharge statement (from the existing lender) doesn't need to disclose the new lender's name. As a result, the existing lender cannot see who they are competing against.
Haslett adds that, “If a lender wants the old mortgage discharged and a new mortgage registered, it will attract a new title insurance policy in the name of the new lender and result in a title insurance premium.”
Rob McLister, CMT