Does title insurance provide coverage for known defects?
For example, if you are aware of a encroachment (where a portion of a structure goes onto neighbouring property or violates the setback requirements of the municipal bylaw) will title insurance provide coverage if you are forced to remedy the encroachment?
First Canadian Title insurance (the company I order title insurance policies from) deals with known defects on a case by case basis. FCT underwriting will ask questions about the type of property, how long the encroachment has existed, whether anyone is aware of a complaint with respect to the encroachment and so on. Most times FCT is able to provide full coverage over encroachments for a mortgage lender lender.
FCT is also able to usually provide enforced removal, limited marketability coverage for a homeowner as well. This means that the homeowner would be fully covered by FCT if during their period of ownership they are forced to remove the encroachment. In addition, FCT would agree to provide that same coverage to subsequent purchasers for a new premium with the limitation that coverage would not be provided in the event a prospective purchaser raises an objection to the issue and wants, for example, an abatement in the purchase price.
FCT always recommends that at the time the insured lists the property, they disclose the issue and confirm that title insurance will provide coverage to the future owner. This means if you are aware of an issue you can contact FCT when the property is listed to see if they will offer enforced removal, limited marketability coverage for a homeowner. You can offer this to your buyer instead of paying for an encroachment agreement for a known defect. This should be addressed at the time of entering into the purchase and sale contract.
As you can see, known defect coverage is very advantageous in helping close deals, especially when many of the issues that arise are relatively minor.
Please feel free to contact my office or FCT directly for any questions regarding the enforced removal, limited liability coverage .
