Investing in Texas? You need Title Insurance
Title insurance protects people from losses arising from a real estate purchase. Losses may be caused by things such as unknown liens, defects, or encumbrances on the property that existed before the purchase. Examples include:
- unpaid property taxes;
- fraud or forgery of a previous deed; and
- a spouse or unknown heir who makes a claim against the property.
Title insurance agents will identify defects in the title that need to be corrected before the owner of the land sells it to you. Agents will check for problems with your title by looking at public records, including deeds, mortgages, wills, divorce decrees, court judgments, tax records, liens, encumbrances, and maps.
A title insurance policy also protects right of access to the property.
What Types of Title Insurance are Available?
There are two types of title polices.
The owner’s policy protects the buyer’s interest in the property. The policy protects you from the covered risks listed in the policy. The price of the policy is usually included in your closing costs. An owner’s policy only covers you up to the value of the property at the time you bought the policy. It doesn't cover any increase in your property's value, unless you buy an increased value endorsement.
An owner’s 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’s policy, even if you transfer your title or sell the property.
The loan policy protects the lender’s interest. A loan policy covers up to the amount of the principal on your loan.
Loan policies are effective until you repay the loan. Lenders will require you to buy a new loan policy if you refinance your home. When the new loan pays off the existing loan, the old loan policy expires. You will get a premium discount on a new loan policy if you refinance within seven years.
Title policy forms in Texas are standardized. This means most of the policy language is the same regardless of which title agent sells the policy. Title agents must use the standardized forms.
The policy is based on the title commitment you get from the title agent. Carefully read the commitment, especially the items in Schedule B and Schedule C. Contact the title agent if you have questions. The agent might be able to remove an exception if a title problem is cleared up or if you buy additional coverage.
Check the legal description of the land against your survey to confirm that what is conveyed in your contract is accurate. Title insurance doesn’t protect against boundary disputes with your neighbor, unless you buy additional coverage.
Where Do I Buy a Title Insurance Policy?
You may choose any title agent you want. You don't have to use the company your real estate agent or lender recommends.
Make sure that the agent you use is licensed. It's illegal to sell title insurance without a license in Texas. If you buy from an unlicensed company, any claims you might have could go unpaid.
To verify that an agent is licensed, call the Texas Department of Insurance (TDI) Title Agent Licensing Office at 512-676-6475 or email TDI-TitleLicensing@tdi.texas.gov.
How Much Does a Title Policy Cost?
Rates are based on the property’s sale value. TDI sets title insurance premium rates. All title agents charge the same premium for property of the same value.
The basic premium rate includes the cost of title examination, closing, and issuing the policy. You pay a title policy premium only once, at the closing of the sale.
Title agents add charges for tax certificates, escrow fees, recording fees, and delivery expenses. These charges vary between title agents. Ask for a list of charges and review the charges carefully.
What Does a Title Policy Cover?
The owner’s policy protects you against losses from ownership problems from before you bought the property, but that weren’t known when you bought the property. For example, you could lose title to your property because of fraud, errors or omissions in previous deeds, or forgery of a previous deed. The owner’s policy protects the buyer from the covered risks listed in the policy.
The loan policy protects the lender’s interest in the property until the borrower pays off the mortgage.
Both types of policies provide coverage if:
- someone else owns an interest in the land;
- there’s no right of access to and from the land; or
- there are liens on the title for labor and material from before the policy effective date that you didn’t agreed to pay.
What Doesn’t a Title Policy Cover?
Title insurance doesn't insure against fire, flood, theft, or any other type of property damage or loss. A homeowners insurance policy covers these types of losses. Title insurance doesn’t protect against boundary disputes with your neighbor, unless you buy an endorsement adding that coverage.
A title policy won’t cover:
- defects created after the policy is issued;
- defects you create, or that you knew of;
- problems that arise because of your failure to pay your mortgage or to obey laws or restrictive covenants you were told about;
- taxes and assessments;
- losses resulting from rights claimed by someone else occupying the land (unless you pay the title agent to have the property inspected and coverage added); and
- homestead, community property, or survivorship rights of a policyholder’s spouse. Texas homestead laws address the rights of a spouse or survivors of a property owner.
If you think you need more coverage, talk to your title agent before closing.