What is title insurance?

An insurance policy-protecting against loss should the condition of title to land be other than as insured.

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. When you buy a house and purchase a loan policy, a title company will automatically issue an owner policy unless you specifically reject it in writing. 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.

Why do I need title insurance?

When you buy a home, or any property for that matter, you expect to enjoy certain benefits from ownership. For example, you expect to be able to occupy and use the property as you wish, to be free from debts or obligations not created or agreed to by you,  and to be able to freely sell or pledge your property as security for a loan. Title insurance is designed to cover these rights you bargain for.

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 does this cost?

The cost varies, depending mainly on the value of your property. The  important thing to remember is that you only pay once, then the  coverage continues in effect for so long as you have an interest in covered property. If you should die, the coverage automatically continues for the benefit of your heirs. If you sell your property, giving warranties of title to your buyer, your coverage continues. Likewise, if a buyer gives you a mortgage to finance a purchase of covered property from you, your coverage continues to protect your security interest in the property.  The Texas Department of Insurance sets title insurance premium rates. Rates are based on the property’s sale value using a sliding scale.

What if I have a problem? Do I have to lose my property to make a claim?

Not at all. At the mere hint of a claim adverse to your title, you should contact your title insurance or the agent who issued your policy. Title insurance includes coverage for legal expenses which may be necessary to investigate, litigate or settle an adverse claim.