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It's a 'no-brainer': Title insurance is the cheapest way to protect your home

It's a one-time premium that protects your ownership or legal title to the property

A row of houses are pictured in the neighbourhood of Dunbar in Vancouver, British Columbia, Canada, September 22, 2016. REUTERS/Ben Nelms
The importance of title insurance has been in the spotlight after a case of fraud in Toronto where a home was listed for sale and sold without the homeowners' consent. REUTERS/Ben Nelms

Buying a home is the largest purchase many Canadians will make in their lifetime, so it's understandable that two recent stories where properties were listed for sale – and in one case, sold – without the homeowners' knowledge have raised alarm bells.

But there's a simple, not to mention, cheap, solution for homeowners concerned about potentially falling victim to such fraud: title insurance.

"Peace of mind through the protection that title insurance offers is a no-brainer," Daniel La Gamba, a real estate lawyer and partner at LD Law LLP, told Yahoo Finance Canada via email.

Title insurance is a one-time premium paid at the time of the home purchase that protects your ownership or legal title to the property and can cover a variety of losses arising from previously unknown issues. It's in place for as long as you own the property.

A quick calculation shows the title insurance premium on a one-million dollar home would be roughly $900, according to La Gamba.

The most common losses that can be covered by the insurance include unpaid property taxes or outstanding contractor fees from renovations done under the previous owner. But in recent weeks, an arguably lesser-known issue being thrust into the spotlight that title insurance can cover is fraud.

Toronto police have revealed they're investigating two cases where homes were listed for sale without the owners' knowledge, and in one case, the home was sold. The two cases are thought to be related.

In both instances, police say two suspects impersonated the homeowners using fake identification and hired realtors to list the properties.

"Because real estate is so valuable, it can be a big target," Joseph Richer, registrar at the Real Estate Council of Ontario, said via email.

Richer says the onus is on real estate agents to verify an individual's identity, and agents that fail to do so "risk facing disciplinary action or civil litigation by those who may be affected by the failure. The maximum discipline fine for an agent is $50,000 but, depending on the conduct, they might also face a proposal to suspend or revoke their registration."

Unfortunately, in the case where the home was sold and new owners took possession, La Gamba says that deal likely can't be undone, leaving the original owner in the lurch.

"There is a legal principal which is applicable here. It is referred to as the Bonafide Purchaser for Value without Notice. Where you have a good-faith buyer who has paid a stated price without knowledge of any existing claims, their purchase will be protected under law," he said.

"Applied to our scenario, the individual(s) who bought this property from the fraudsters would be protected so long as they bought in good faith, for fair-market value and without notice that the real owners never consented to the sale."

For the defrauded owners who lost possession of their home, La Gamba says title insurance (if they have it) would likely provide a payout equal to the value of the loss, a benefit that pales in comparison to the insurance premium cost.

Meanwhile, title insurance company Stewart Title Canada says if it insured an unwitting buyer in a fraudulent transaction, the company would incur the cost of transferring the property back to the original owner. Stewart Title says it might pay the costs of relocating the purchaser or pay for temporary housing and reimburse them, and perhaps the mortgagee, for the loss.

For homeowners who currently do not have title insurance but want to take precautions, La Gamba suggests purchasing a limited policy that deals solely with fraud.

Michelle Zadikian is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @m_zadikian.

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