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Title Insurance has become a routine part of buying residential
real property in Saskatchewan. For a typical new home buyer, there
are two types of title insurance policies to be aware of. A lender
title insurance policy (“lender
policy” or “lender
policies”) protects lenders such as banks and credit
unions, and a homeowner title insurance policy
(“homeowner policy” or
“homeowner policies”) protects
homeowners. Home buyers are often unaware of title insurance until
they attend their lawyer’s office to sign closing documents.
Whether you are a first-time home buyer or an experienced property
owner, this brief article is intended to give a brief explanation
of the basic difference between a lender policy and a homeowner
policy. Title insurance is a complex insurance product, and you
should consult your lawyer for any questions you may have when
obtaining or considering a title insurance claim.
In this article, “homeowner” refers
to the owner of various types of residential real estate, including
homes and condos, and “home” refers to
various types of residential real estate, including homes and
condos.
What is a Lender Policy?
A lender policy is an insurance policy which protects the lender
from specific title ownership risks identified in the policy, which
may affect the lender’s ability to recover from the mortgage
security it takes from the home buyer. These risks include the home
being constructed without the correct permits or not being built
within the legal lot lines of the land. To address these sorts of
risks, mortgage lenders often require home buyers to obtain a
lender policy or, in the alternative, a surveyor’s
certificate and off-title searches such as a search of city and
utility inspection records. A surveyor’s certificate shows
the position of the buildings on the site relative to legal lot
lines and requires the surveyor to attend the site and prepare a
diagram. While useful for other purposes, a surveyor’s
certificate may not be available in time for closing and comes with
an attendant cost. Considering these issues, a lender policy is
often an attractive alternative. Lenders require home buyers to pay
for the lender policy as part of their agreement with the
homeowner.
The primary purpose of your lender’s policy is to protect
the lender’s investment in your home and the security it has
taken in its mortgage. A lender policy can also assist in ensuring
that a real estate transaction closes on time as it provides what
is commonly called “gap coverage”. Gap coverage allows
lawyers to request and release mortgage funds during the
“gap” in time between when a mortgage is submitted to
the Saskatchewan Land Titles Registry and its processing and
registration.
A lender policy benefits the lender. A homeowner has no, or only
very limited, rights under a lender policy. A lender policy
generally does not protect the homeowner at all.
If you are fortunate enough not to be financing a home purchase
with a lender through a mortgage, a lender policy is not
relevant.
What is a Homeowner Policy?
Buying a home has title ownership risks for an owner, too, like
missing permits or misplaced buildings. A homeowner policy lists
the homeowner as the insured under its terms and therefore provides
the owner with the indemnity protection described in the title
insurance policy. When our clients finance the purchase of their
home with a mortgage, our office strongly recommends a homeowner
policy in addition to the lender policy that is often required by
the lender. Although homeowner policies and lender policies are
separate products, and title insurance premiums vary over time,
location and firm, we currently find that our clients experience a
minimal to slight increase in cost for a homeowner policy when a
lender policy is being purchased at the same time.
If a home buyer is not financing the purchase of their home with
a mortgage, they still have the option to purchase a homeowner
policy. In this situation, homebuyers pay a more significant
premium for their homeowner policy.
A homeowner policy is a product to protect homeowners from
specified potential title risks resulting from owning a home.
Depending on the title insurance provider, a homeowner policy
protects homeowners from (currently) roughly thirty (30) covered
risks. If a homeowner policy is purchased, the title insurance
provider agrees to indemnify the homeowner from the covered risks
existing at the time of issue identified in the policy. A few
typical examples of the generally covered risks are described
below:
- Renovations completed without proper permits where a
municipality takes action against the homeowner to rectify the
problem. - Defects which would have been revealed on a current
surveyor’s certificate, including building encroachments onto
neighbouring lots or onto your lot from a neighbouring lot. - Damages resulting from being a victim of fraud in relation to
your home title. - Outstanding tax or utility payments that the previous owner did
not pay.
The extent to which coverage under these situations is available
will depend on the specifics of the homeowner policy. It is always
best to consult with your lawyer regarding your situation, as
coverage under title insurance is dependent on many different
factors.
Conclusion
Title insurance does not provide absolute protection against all
risks of home ownership but has become an important option for
managing risks for both lenders and homeowners. Just because your
lender has required you to obtain a lender policy covering its
risks, you are not protected as the owner unless you obtain a
homeowner policy as well. Whether you should obtain a homeowner
policy is a question you should consider asking your lawyer when
buying a home.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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