What is 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.
- outstanding property taxes not paid by the previous owner;
- 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 mortgage holder or 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 title 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 company sells the policy. Title agents are required to use the standardized forms. The parts of the policy that may be changed are the property description in Schedule A, the exceptions in Schedule B, and the exclusions. You should review those sections carefully. You can request corrections if you see an error. The agent might be able to remove an exception if a title problem is cleared up or if you buy additional coverage.
Check the policy’s 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 company you want. You don’t have to use a company selected by a real estate agent or lender.
Make sure that the company or agent you use is licensed. It’s illegal to sell title insurance without a license in Texas. If you buy from an unlicensed company, your claims could go unpaid.
To verify that a company or agent is licensed, call TDI’s Consumer Help Line at 1-800-252-3439. You may also email TDI-TitleLicensing@tdi.texas.gov or call 512-676-6475.
How Much Does a Title Policy Cost?
Rates are based on the property’s sale value. The Texas Department of Insurance sets title insurance premium rates. All title agents charge the same premium for property of the same value.
The basic premium rate includes the price for title insurance, the cost of the title examination, and closing costs. You pay a title policy premium only once, at the closing of the sale.
Title agents add extra charges for things such as tax certificates and escrow fees, recording fees, and delivery expenses. These charges vary between title agents. Review any extra charges carefully. You may negotiate or request documentation of the costs.
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 at the time 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.
The covered risks in your policy depend on whether you buy a loan policy or an owner’s policy. The loan policy and the owner’s policy will cover if:
- someone else owns an interest in your land;
- there’s no right of access to and from the land; and
- there are liens on your title for labor and material from before the policy date (this doesn’t cover liens for labor and material that you agreed to pay for, however).
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. Title insurance doesn’t protect against boundary disputes with your neighbor, unless you buy an endorsement adding additional coverage.
A title policy generally won’t cover mistakes or defects, financial issues, or rights issues such as:
- defects that are created after the policy is issued;
- defects that you create, or that you had knowledge of;
- problems that arise because of your failure to pay your mortgage or to obey applicable laws or restrictive covenants that were disclosed to you;
- certain taxes and assessments;
- losses resulting from rights claimed by someone else occupying the land (the title company might need to inspect the property and may charge for the inspection); 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 additional coverage, talk to your title agent about adding endorsements to your policy.
For answers to general insurance questions, for information about filing an insurance-related complaint, or to report suspected insurance fraud, call the Consumer Help Line at 1-800-252-3439 between 8 a.m. and 5 p.m., Central time, Monday-Friday, or visit our website at www.tdi.texas.gov