|
WHAT IS 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.
↑ back to top
|
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. |
↑ back to top
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.
|
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. |
↑ back to top
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 person's 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
its 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. |
↑ back to top
|
