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Lender’s Title Insurance – An Important Risk Management Tool

18 April 2023

At CMI, we require lender’s title insurance on the properties we lend upon. A form of indemnity insurance, title insurance protects lenders and homebuyers from defects in a title to a property. It is paid for by the borrower.

A clear title is necessary for any real estate transaction. Title insurance will protect the lender against any loss or damage occurring from liens, encumbrances, or defects in a property’s title or actual ownership.

Unlike traditional insurance, which protects against future events, title insurance protects against claims from past occurrences. The title underwriting process is designed to limit risk exposure through a thorough search of the recorded documents affecting a particular property. The insurance indemnifies for existing – but unidentified, or specifically underwritten – defects in the condition of a property’s title.

Matters typically covered by title insurance:

  • Invalidity or unenforceability of the mortgage against title, including fraud and forgery, and failure to obtain Independent Legal Advice;
  • Unmarketability of title;
  • Defects in title;
  • Contravention of subdivision, development and other agreements;
  • Violation of registered restriction (both existing at the policy date or after mortgage registration);
  • Lack of priority of mortgage;
  • Violation of zoning requirements;
  • Lack of vehicular or pedestrian access;
  • Lack of building permits;
  • Defects that would have been revealed by an up-to-date survey/Real Property Report/Building Location Certificate;
  • Construction liens;
  • Property tax arrears;
  • Inability to use the property for single family residential purposes;
  • Encroachment of improvement built after the Policy date onto mortgaged property;
  • Fraudulent discharge of the mortgage;
  • Water potability as at the policy date; and
  • Septic system work orders, lack of use permit (if required) and encroachments of septic system.

 Matter not covered by title insurance:

  • Environmental hazard or claims;
  • Building structural deficiencies (unless as a result of work being completed without a proper permit);
  •  Adequacy of the quantity of the well water;
  • Sewer system failures (unless as a result of improvement without permit);
  •  Native Land Claims;
  • Non- title related issues (e.g. sewer back up, wear and tear)

Title insurance protects lenders from potential loss of security as a result of a title problem. It provides a valuable supplement to the legal services provided by lawyers in the closing process.



Independent Opinion

The views and opinions expressed in this publication are solely and independently those of the author and do not necessarily reflect the views and opinions of any person or organization in any way affiliated with the author including, without limitation, any current or past employers of the author. While reasonable effort was taken to ensure the information and analysis in this publication is accurate, it has been prepared solely for general informational purposes. Any opinions, projections, or forward-looking statements expressed herein are solely those of the author. There are no warranties or representations being provided with respect to the accuracy and completeness of the content in this publication. Nothing in this publication should be construed as providing professional advice including investment advice on the matters discussed. The author does not assume any liability arising from any form of reliance on this publication. Readers are cautioned to always seek independent professional advice from a qualified professional before making any investment decisions.

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