WHAT IS TITLE INSURANCE

Title insurance protects you if someone challenges your title to your property because of title defects that were unknown when you bought the policy.  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.

It is different from other types of insurance, such as auto, which cover you from losses that occur in the future.  Title insurance protects you from losses that occurred in the past for the entire time you own the insured property.

HOW DOES TITLE INSURANCE BENEFIT YOU

If a claim is made against your property, title insurance will, in accordance with the terms of your policy, assure you of a legal defense and pay all court costs and related fees.  Even if the claim proves valid, you will be reimbursed for your actual loss up to the face amount of the policy.

WHAT DOES A TITLE POLICY COVER

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 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 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.

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."

WHAT IS THE COST OF A TITLE INSURANCE POLICY

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, although in most real estate transactions, the Seller usually provides the policy at their cost.

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.

ALWAYS MAKE SURE YOUR POLICY IS 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, however it is a common practice that the party paying for the title policy gets to choose the title company.   Just make sure that your policy is being issued from a licensed title company, although 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 the Texas Department of Insurer’s Consumer Help Line at  1-800-252-3439

CHECK YOUR TITLE COMMITMENT AND POLICY CAREFULLY

When your sales contract goes to the title company, they will complete a title search.  Upon completion, they will provide you with a title commitment usually within 20 days of the contract’s effective date.  Read your commitment carefully and verify everything is correct.  Also get all your questions answered immediately. 

• Schedule A outlines the effective date of the policy, the insured’s name(s), the sales price, loan amount, name of current owner and the property’s legal description. 
• Schedule B outlines everything of record that affects the property, such as deed restrictions, easements and mineral reservations related to oil and gas. 
• Schedule C summarizes any requirements that must be met before a policy is issued.  
• Schedule D is a disclosure of the title company officers, the underwriter and the premiums charged and the policy’s beneficiary.

Once all requirements are met and the property closes, an original copy of your title insurance policy will be mailed to you by the title company.