Title insurance has to be one of the most overlooked aspects of a real estate transaction, and honestly I don’t think that will ever change. Most people don’t even know or understand what title insurance is, and sometimes buyers get so afraid of it that it can almost out a whole transaction at risk .
Let’s start with the basics, what is title insurance? In simple terms, it is an insurance offered by only a select number of companies that protects buyers against issue’s that may be found on the certificate of location or in the title of your home (creative name right?) So what does that mean in simple english? Here’s an example:
You make an offer on a home, and unfortunately the current certificate of location is outdated, in your offer you request that a new one is ordered and paid for by the vendor prior to the signing of the title deed (purchase of the home at the notary). Perfect! now your protected… WRONG! A few months pass by, everyone forgets about the certificate assuming that all is ok, when the notary gets the certificate of location (usually only about 1-3 weeks before the sale, she finds out that there are minor issues that need to be resolved. What type of minor issues does the title insurance cover?
– A shed that encroaches on the neighbours lot or the servitude of hydro Quebec. (Encroaches = Intrudes on).
– A fence that is not perfectly on the property line, instead goes into your neighbours lot.
– A thermopompe that is too close to the property line.
As you can see, title insurance essentially covers small items that can cause bigger issues. The aim of using a title insurance is kind of similar to that of a band-aid. For example, the shed in your backyard is brand new, freshly installed and the buyer absolutely loved it. But because it is encroaching into the servitude of Hydro Quebec/Bell Canada, the permanent solution is to move it, or remove it. The title insurance acts as a way for the seller to leave his shed where it is, and offer a paid insurance to the purchaser that will move the shed, or remove the shed for the buyer should any authority come and ask for it to be done.
Sometimes title insurance can be used because the certificate of location has not been received on time. A way to cover the purchaser if the certificate of location was ordered, but not issued on time for the transaction is to provide a title insurance that would essentially cover the buyer on any unknown that the missing certificate may have.
In all regards, the title insurance is used by a notary to add a layer of protection to a transaction for a buyer and make sure that should there be any issues, they are well protected and insured. Over all, it may not be as fun for a seller to have to pay $250, $300 or even sometimes $800, but it is definitely much easier than going back home and moving a 21 year old shed, am I right?