What is a "Clear Title"? Important Information When Buying Property
With all real estate transactions, it is important to know as much as possible about the properties you are purchasing and their history so that you make an informed decision. One of the key steps in the process is ensuring that the property has a clean or clear title.
“Property Title” is a bundle of rights and responsibilities that are connected to a piece of property which have a legal or financial interest. When you buy a house, condo, land, or any type of real estate in Canada, the transfer of ownership of the property comes with both the physical property itself, as well as a property title that outlines all of the intangible rights and responsibilities tied to it.
Lawyers typically look after title searches as part of the closing process. All private property ownership records in Ontario are registered with the government.
All historic land ownership documents, including deeds, mortgages, and other documents will be made available in your title search.
You can search your own land registration records online using the OnLand site (title search company), as they are public records and can be accessed for a small fee. However, you are still advised to have a lawyer involved to interpret the information within the title search, as there may be potential issues, with legal implications to consider for both the buyers and sellers. That’s why the easiest way to handle the title search is to leave it to your lawyer’s office.
Why do we need this information?
The reality is that some properties may come with “baggage” or a “few skeletons in the closet”. Transfer of ownership means the property title transfers too and the new owners take on everything that is connected to it. The good, the bad, and the ugly! Although a title search is not mandatory, it is HIGHLY advised – in some cases even before you submit your offer, or as a condition to your offer. Without a title search, new owners are taking on any outstanding legal contracts or financial responsibilities related to the property from the current owner.
The search may reveal a wide range of title issues, that the sellers themselves may not have known about or assumed they were resolved. These could include an outstanding mortgage, mortgage liens, tax liens, unpaid property taxes and outstanding debts where money was borrowed against the home’s equity and has not been fully repaid yet.
I was once involved in a property purchase where the sellers had taken out a mortgage with a private mortgage lender years earlier. The mortgage had long since been repaid, but the legal document to discharge the mortgage had not been filed. Because it had been 3 decades since the mortgage was registered, and the mortgage lender had since passed away, a court order was required to remove the charge from title.
In many cases, the issues are not because someone was trying to hide a problem, but rather just sloppy record keeping. This can especially be the case when a property has been owned by an individual for a long time or has been passed down from one family member to their children. Things like boundary disputes or legal claims related to the property can be forgotten over time.
Even new homes can have title problems and off-title matters. Sometimes builders or contractors have building permits that need to be closed out, have unresolved building code violations or have a home equity loan with an outstanding loan balance that has to be dealt with.
Advice for Potential Buyers
The purpose of the title search is to put all the cards on the table, determine what legal problems can be resolved prior to the title transfer to the new owner, or in the worst case, give the buyers the opportunity to walk away from the transaction. In my experience, this is a rare occurrence. Typically the title is clean, or the issues can be resolved with the help of lawyers, and the home sale can take place.
In my opinion as a Realtor, having a title search done by your lawyer is simply one of the best ways to protect yourself and your real estate investment even before the offer to purchase is signed. Your lawyer will likely recommend the added benefit of purchasing title insurance for added reassurance and protection. A title insurance company will charge a one-time fee which is based on a sliding scale related to the purchase price and your mortgage financing. It seems like a small amount to pay when the financial loss and legal consequences if something is missed could be huge.
To put it another way, buying a home without a title search is like getting married at first sight; there aren’t many people who would feel confident marrying someone they didn’t know. Reviewing the title information for the sale of the property, is like vetting your prospective spouse before you tie the knot. The process is there to give you peace of mind when entering into this big legal agreement