|
Title Insurance
Title insurance provides protection against title defects
that were unknown to you at the time you purchased the policy.
The term "title" refers to the collected ownership
records of a piece of real estate, including the transfer
of any property rights, and any loans using the property
as collateral. A clear line of title makes you much less
vulnerable to ownership claims from other parties and to
outstanding debts of previous property owners.
Before writing a policy, a title company will check for
defects in your title by examining public records, including
deeds, mortgages, wills, divorce decrees, court judgments,
tax records, liens, encumbrances, and maps. The company will
then defend in court any claims to the property that are
covered by your policy, subject to certain limitations. If
the company loses, it will pay you for covered losses up
to the amount of your policy.
Title companies also handle the closing of a property sale
and hold any earnest money in a trust account until the purchase
is complete.
Mortgagee and Owner Policies
In Texas, the two most common types of title policies are "mortgagee
policies," which protect lenders, and "owner policies," which
protect property buyers.
Most lending institutions won't loan you money to
buy a house or other property unless you purchase a mortgagee
policy. This policy will repay the balance of your mortgage
if a claim against your property voids your title.
Mortgagee policies remain in effect until the loan is repaid.
Most lenders will require you to buy a new mortgagee title
policy if you refinance your home. When the new loan pays
off the existing loan, the old mortgagee policy expires.
You are entitled to a premium discount on a new mortgagee
policy if you refinance within seven years.
Owner polices insure property owners against the specific
kinds of claims listed in the policy. When you buy a house
and purchase a mortgagee policy, a title company will automatically
issue an owner policy - for a set premium - unless you specifically
reject it in writing.
An owner policy remains in effect as long as you or your
heirs own the property or are liable for any title warranties
made when you sell the property. You should keep your owner
policy, even if you transfer your title or sell the property.
General Information about Title Insurance
In Texas, title policy forms are standardized. This means
the policy language is the same, regardless of the company.
Different companies may describe their coverage exceptions
differently, however. Therefore, it's important that
you read your policy carefully. Pay special attention to "Schedule
B" of the policy, which explains any limitations, exclusions,
exceptions, and special conditions. You may want to discuss
these exceptions with an attorney before you close on a real
estate deal.
Also, check the policy's legal description of the
land against your survey and your earnest money contract.
Title insurance generally does not protect against boundary
disputes with neighbors. However, this coverage is available
for purchase for an additional premium.
In addition:
A title policy does not guarantee that you will be able
to sell your property or borrow money on it, or that you
won't lose money if you do sell it.
Title insurance only protects you from claims of ownership.
It does not insure against fire, flood, theft, or any other
type of property damage or loss.
An owner policy only covers you up to the value of the property
at the time you purchased the policy. It does not cover any
increase in value, unless you purchase a special "increased
value endorsement."
A mortgagee policy covers up to the amount of the principle
on your loan.
Title Policy Premiums
The premium for a title policy is paid only once, at the
closing of the sale. The buyer and seller may negotiate who
pays the premium.
Title insurance premium rates are set by the Texas Department
of Insurance (TDI) and are based on the property's
sale value using a sliding scale. For example, the basic
premium for a $50,000 property is $520, and the basic premium
for a $100,000 property is $871.
Some title companies add extra charges for tax certificates
and escrow fees, recording fees, and delivery expenses. Review
any extra charges carefully; you may negotiate or demand
documentation of the true cost of these services. You have
the right to receive your closing papers a day in advance
of the closing if you request. You may also have an attorney
attend the closing with you.
Always buy from a licensed company
You may choose any title company you want - you don't
have to use a company selected by a real estate agent or
lender. Make sure that you buy from a licensed title company,
however. It's illegal to sell title insurance without
a license in Texas. In addition, if you buy from an unlicensed
company and the company goes broke, your claims could go
unpaid. The Texas Title Insurance Guaranty Association pays
claims against licensed companies that become insolvent,
up to $250,000 per claimant, or $250,000 per policy.
To verify that a company is licensed, call TDI's Consumer
Help Line
1-800-252-3439
463-6515 in Austin
What a title policy covers
If someone claims an interest in your property, a title
company will defend your title in court and pay for any actual
loss under these circumstances:
A lien against your title exists because a previous owner
failed to pay a mortgage or deed of trust; a judgment, tax,
or special assessment; or a charge by a homeowners or condominium
association. If you receive notice of a previous lien, contact
your title company immediately and follow your policy's
claim filing procedure. Failure to do so could jeopardize
your claim.
A lien exists for labor and materials furnished by a contractor
without your consent. Generally, your policy protects you
if you buy your house already built, but not if you own the
land and contract with a builder to build your home. Consult
an attorney about your rights.
Other liens or encumbrances on your title exist but aren't
listed in the policy exceptions.
Leases, contracts, or options on your land weren't
recorded in the public records and disclosed to you.
The title policy failed to disclose legal restrictions on
how you can use your property.
An easement exists that isn't in public records and
that you don't know about. The title policy assures
you a legal right of access to your property. This means
that you have a right to travel from your property to a public
street or road.
A notary public erred or someone failed to properly sign
a document in your chain of title, made an error in recording
the document at the county clerk's office, or failed
to deliver the deed according to statutory requirements.
A deed or other document in your chain of title is invalid
as a result of forgery, fraud against the rightful owner,
a signature given under duress, or a signature by a person
legally incompetent to sign or someone claiming to be someone
else.
What a title policy doesn't cover
In general, a title policy won't cover problems with
your title that occur after the date you purchased the policy,
nor will it protect you from problems that you create or
from problems unrelated to your or the lender's property
interests.
Your policy also will not cover any special exceptions -
such as a public utility easement - added by the title company
during the title examination process. These exceptions must
be listed in Schedule B of your policy. The company must
make you aware of each exception and describe it using common
language so that you can easily locate the reason for the
exception in public records.
In addition, a title policy generally will not cover the
following:
Effects of your failure to pay value for your property.
An unrecorded title defect that you knew about or allowed
to occur.
Violations of building and zoning ordinances and other laws
and regulations dealing with land use, land improvements,
land division, and environmental protection.
Restrictive covenants limiting how you may use the property
and prescribing requirements for buildings constructed on
the property. Schedule B lists these restrictions. Be sure
to request copies of any restrictions and have your attorney
explain them. The title company may charge you for the copies.
Losses resulting from rights claimed by "parties in
possession," such as renters or adverse claimants who
occupy the land. If you object to the exception, the title
company may inspect the property and delete the exception
from your policy. The title company may charge for the inspection.
Condemned land, unless the condemnation occurred before
the policy date and is binding on you even if you bought
the land without knowing it was condemned, or unless a condemnation
notice appeared in public records on the policy date.
Homestead, community property, or survivorship rights, if
any, of a policyholder's spouse. Texas homestead laws
uniquely address the rights of a spouse or survivors of a
property owner. Have your attorney explain your rights and
limitations under the law.
Conveyance of title irregularities arising from a deceased
persons estate, a bankruptcy estate, or a trust. Consult
an attorney to have these situations explained to you.
Claims from other people who may have certain rights if
your property is on or near the shores of a body of water
or has a river or stream flowing through it. If you don't
understand the rights of others to use your property because
it's situated on or near a body of water or created
with fill, ask your attorney for an explanation.
Certain taxes and assessments. Your title policy ensures
that all property taxes and assessments are paid for the
most current year available. However, certain tax exemptions
enjoyed by previous owners could result in more taxes being
assessed against your property in the future. If you buy
property with borrowed money, the lender may ask that its
mortgagee policy delete the exception for "subsequent
taxes and assessments by any taxing authority for prior years
due to change in land usage or ownership." In such cases,
the title company may require that the assessment be calculated
and paid.
The preceding information provided by the Texas Department
of Insurance.
return to Insurance | return
to Mortgage Library |
