Not all Title Insurance Policies are Created Equally: lender’s title policy vs. owner’s title policy

by | Feb 13, 2017 | Insurance, Property, Real Estate

You are buying your first home and you have signed so many documents your hand is getting sore. You likely have signed a mortgage, the mortgage covenants, discussed title to the property with your lawyer, arranged for fire insurance; maybe you talked about zoning requirements (depending on your plans for the property); arranged for your down payment on the home; Not to mention that you have been dealing with the logistics of moving—renting a van, picking up pizza and soft drinks to lure your friends in to helping you out; You have been so busy that you probably do not even remember the (likely very brief) conversation you had with your lawyer about title insurance. There can be serious consequences of not being aware of the difference between a Lender’s vs. and Owner’s title insurance policies. What is more concerning is the differences are not easily identified by title insurance companies and require a thorough reading by the counsel and the policy holder.

Here are some basic differences between the two types of title insurance policies:

1. Lender’s policy

A lender’s title insurance policy is usually required by your mortgage company when you purchase a home if you do not have a building location survey. Whereas a survey can  be thousands of dollars, a typical title insurance policy usually costs between $1-200 per policy. This makes title insurance an alluring option for home purchasers rather than spending thousands of dollars when you have already made the (likely) single biggest investment of your lifetime!

Here are some key facts about the lender’s policy:

  • Also known as “loan” policy
  • Lender requires lender’s policy before financing purchase;
  • Only covers the lender’s interests in the property;
  • Types of risks covered:
    • Fraud (signing wrong name on mortgage, etc.);
    • Legal fees in defence of title (ownership issues);
    • Issues regarding priority (other mortgages or judgements registered ahead of bank’s mortgage);
    • Gap coverage (if mortgage not registered on title for a period of time after closing);

2. Owner’s Policy

An owner’s title insurance policy can provide protection against the losses listed in the policy. Some examples could be:

  • someone else owns an interest in your title
  • existing liens against the title
  • violations of municipal zoning by-laws
  • encroachments onto an adjoining property (other than fences and boundary walls)
  • setback violations
  • realty tax arrears
  • outstanding municipal utility charges, provided such charges form a lien on title
  • existing work orders
  • lack of legal access to the property
  • unmarketability of the land due to adverse matters that would have been revealed by an up-to-date survey / RPR/ Building Location Certificate

3. Some helpful links

If the difference between the two types of title insurance policies is still not clear, here are some links that may assist you in further understanding the differences: