What is Title Insurance?

(January 2015)

A title is a legal term that refers to the ownership records about a piece of real estate. The records could include the transfer of any property rights and any loans using the property as collateral.

Title insurance protects you from claims of ownership, outstanding debts of previous owners, and other title problems that you didn’t know about before you bought the property. It doesn’t insure against fire, flood, theft, or any other type of property damage or loss.

Before selling a title insurance policy, a title company 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. The company will then defend you in court if there is a claim against your property, subject to certain limitations. If the company loses, it will pay you for covered losses up to the amount of your policy.

Most people buy title insurance from the title company that closes the sale of their property. The company will hold any earnest money in a trust account until the sale is complete.

Types of Title Policies

In Texas, the two most common types of title policies are loan policies that protect lenders and owner policies that protect property buyers.

Loan Policies

Most lenders will require you to buy a loan policy — also known as a mortgagee policy — if you want to borrow money for the property. This policy will repay the balance of your mortgage if a claim against your property voids your title. A loan policy covers up to the amount of the principal on your loan.

Loan policies are effective until you repay the loan. Most 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.

Owner Policies

Owner polices protect you from the risks listed in the policy. The price of the policy is usually included in your closing costs. An owner 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 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.

Policy Language

Title policy forms in Texas are standardized. This means the policy language is the same, regardless of which company sells the policy.

It’s still important that you read your policy carefully because different companies may describe their coverage exceptions differently. Pay special attention to Schedule B of the policy, which explains any limitations, exclusions, exceptions, and special conditions. You might 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 doesn’t protect against boundary disputes with neighbors. You can buy this coverage for an additional premium.

A title policy doesn’t 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.

What a Title Policy Covers

If someone claims an interest in your property, a title company will defend your title in court. The company will pay for a loss if there are lien issues or errors or omissions. If you get notice of a previous lien on your property, contact your title company immediately and follow your policy’s claim-filing procedure. Failure to do so could jeopardize your claim.

Lien Issues

• A previous owner failed to pay
  • a mortgage or deed of trust
  • a judgment, tax, or special assessment
  • a charge by a homeowners or condominium association.
• There is a lien on your title for labor and materials the contractor bought without your consent. Generally, your policy protects you if you buy a house already built, but not if you own the land and contract with a builder to build your home. Talk to an attorney about your rights.
• There are other liens or claims against your title that aren’t listed in the policy exceptions.

Errors or Omissions

• Leases, contracts, or options on your land weren’t recorded in the public records.
• The title policy didn’t tell you about legal restrictions on how you can use your property.
• There is an easement 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
• Someone didn’t properly sign the chain of title, or a notary public made an error on the document, made an error in recording the document at the county clerk’s office, or didn’t 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 force, or a signature given by a person legally incompetent to sign or claiming to be someone else.

What a Title Policy Doesn’t Cover

A title policy generally won’t cover mistakes or defects, financial issues, or rights issues.

Mistakes or Defects

• Problems with your title that happen after you bought the policy.
• Problems that you create or problems that are unrelated to your or the lender’s property interests. Call an attorney to learn more about your property rights. Any special exceptions – such as a public utility easement -the title company added during the title examination process must be listed in Schedule B of your policy. The company must tell you about each exception and give you enough information to easily locate it in public records.
• An unrecorded title defect that you knew about or allowed to happen.

Financial Issues

• Penalties if you don’t pay for your property.
• 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 claimed 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 taxes be calculated and paid.

Rights Issues

• Losses resulting from rights claimed by “parties in possession,” such as renters or anyone else occupying 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.
• 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.
• Claims from other people who may have certain rights if your property is near a body of water or has a river or stream flowing through it.

Other Issues

• Condemned land, unless a condemnation notice appeared in the public record on the policy date or the condemnation occurred before the policy date.
• Violations of building and zoning ordinances and other laws and regulations related to land use, land improvements, land division, and environmental protection.
• Restrictive covenants limiting how you may use the property and stating the requirements for buildings constructed on the property. Schedule B lists these restrictions. Request copies of restrictions and have your attorney explain them.

Title Policy Premiums

You only pay a title policy premium once, at the closing of the sale. The buyer and seller may negotiate who pays the premium.

The Texas Department of Insurance sets title insurance premium rates. Rates are based on the property’s sale value using a sliding scale. For example, the basic premium for a $50,000 property is $522, and the basic premium for a $100,000 property is $875.

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 may ask to see your closing papers a day in advance. 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 whatever company you use is a licensed title company. It’s illegal to sell title insurance without a license in Texas. 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 up to $250,000 per claimant or $250,000 per policy against licensed companies that become insolvent.

To verify that a company is licensed, call TDI’s Consumer Help Line at 1-800-252-3439 or online at www.tdi.texas.gov.

Complaints against Agents or Title Companies

If you have a dispute about your premium or a claim, contact your agent or the title company. Item No. 10 of your policy conditions should list the company’s toll-free number.

If you can’t resolve your problem with the agent or company, you can file a complaint with TDI. Include the title company’s full name and your policy number on all letters and documentation. TDI has a single complaint form for all types of insurance including auto, homeowners, life, health, title, and workers’ compensation. Please follow the instructions on the form to provide additional information for certain types of complaints, for example, title, HMO, and workers’ compensation claim complaints. Also health care providers should use Attachment A, accessed via a link within the form, to provide additional claim-specific information.

For information on filing an insurance-related complaint, visit our website at www.tdi.texas.gov/consumer/complfrm.html or call the Consumer Help Line at 1-800-252-3439 between 8 a.m. and 5 p.m., Central time, Monday-Friday.

For More Information or Assistance

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.

You can also visit HelpInsure.com to help you shop for automobile, homeowners, condo, and renters insurance, and TexasHealthOptions.com to learn more about health care coverage and your options.

For printed copies of consumer publications, call the Consumer Help Line.

To report suspected arson or suspicious activity involving fires, call the State Fire Marshal’s 24-hourArson Hotline at 1-877-4FIRE45 (434-7345).

The information in this publication is current as of the revision date. Changes in laws and agency administrative rules made after the revision date may affect the content. View current information on our website. TDI distributes this publication for educational purposes only. This publication is not an endorsement by TDI of any service, product, or company.

*Information Provided by the Texas Department of Insurance