Protecting your real estate asset
By AdvocateDaily.com Staff
Both products are optional in Ontario, but title insurance is required by mortgage lenders to obtain financing, says Aulis, founder of Aulis Law Firm Professional Corporation.
“The reality is, unless you’re a wealthy individual and you don’t need access to mortgage financing, it really is going to be a requirement that you get title insurance,” he says, which means that for most people, it’s not optional.
As its name suggests, title insurance protects property owners and lenders from any losses connected to the title, or ownership, of the property.
“It provides insurance coverage to allow you to correct a deficiency in the title or some of the other things that a policy covers,” Aulis says.
“Policies can vary in terms of what they cover. Some include work permits not being issued, or things of that nature. But they’re really designed to correct defects in the title and the description of the property, mistakes that were made in the past that have to be rectified, and they provide a source of funding to do that.”
Depending on the policy, title insurance can cover a range of problems — from unknown title defects and undisclosed liens against the title, to encroachment issues, title fraud and errors in surveys and public records.
By contrast, a real property report offers protection before a prospective homebuyer signs on the dotted line, Aulis says.
“A real property report is prepared by a professional who goes in, looks at the house and surveys it to assess the physical condition it’s in. They review the municipal building permits and various other things to make sure that what you’re getting is what you think,” he explains.
Without a report, “you might buy a property that cannot be used the way you wanted to use it, and there may be very little recourse,” he says, using as an example someone who buys a home hoping to install a swimming pool in the backyard.
“Maybe the property is not as big as the lot description in the MLS listing, and, in fact, the zoning requirements are such that it would be impossible to put a pool in the backyard because there isn’t sufficient setback space.”
A real property report is generally completed after an offer to purchase is made, and it’s included as a condition in the agreement. So if something unsatisfactory is discovered during the process, it allows the prospective buyer to back out of the deal, ask the vendor to fix the problem or receive an abatement on the price, Aulis says.
He calls the report a “beefed-up” home inspection, which is commonly used by prospective buyers and, like a real property report, is included as a condition in an offer.
“A real property report goes further because the expert may actually do more of a survey, where they’ll measure it, review the physical features on the landscape to make sure things are the way they’re indicated in the listing, and they’ll do a review of its building permits and various documents that have been filed with the municipality,” Aulis says.
A real property report, which is more expensive than a home inspection, isn’t usually necessary for a typical purchase, “where it’s quite clear what you’re getting,” he says. “But if you’re buying a more expensive or an older property that’s been renovated and it may have issues that have developed over time, it’s probably a good idea to spend the extra money.”
When deciding whether to obtain a report, Aulis adds, it’s important to remember that in a competitive market, “putting in a condition that gives you the opportunity to get a report may have an impact on whether or not your offer is accepted.”