Title Insurance

Title Insurance: Your Questions Answered.
 
What is title insurance? Do I have to buy title insurance? How do I get title insurance? If I buy a title insurance policy does that mean I am guaranteed to have perfect title to the property? How much does title insurance cost? Can I shop around for a better premium amount?
 
These are often the first questions clients ask when they are buying a property, and we recommend, or the lender requires, that they purchase a title insurance policy.
 
What is title insurance? It is a contract of indemnity that protects people from losses arising from a real estate transaction. Unlike homeowner’s insurance, title insurance protects from past errors related to ownership history and not future risks, such as fire, flood, or other physical damage to the property.
 
Do I have to buy title insurance? The better question is “Should I buy title insurance?” The answer to that question is almost always yes.  Your home, vacation home, ranch, or investment property is most likely one of your most valuable assets, and title insurance is one of the best ways to protect your ownership of that asset. 
 
How do I get a title insurance policy? Take a signed property/home contract to a title company, and the company will submit your order to a title agent. A title plant then carefully reviews the records affecting the property. Next, the underwriter makes insuring decisions and issues a Commitment for Title Insurance. The Commitment is the promise to issue the insurance policy. You must carefully review the Commitment because it contains any exceptions or exclusions to the policy. Title insurance is regulated in Texas, and each Commitment contains four parts:

• Schedule A – This section sets forth the type of transaction that will be insured, current owner of record, legal description of the property, amount of the policy, and date the Commitment was issued.
• Schedule B –This section reflects the various exclusions and exceptions to coverage. In other words, it lists issues that will not be covered by your policy. You should request copies of all documents identified in Schedule B, and closely review each document. 
• Schedule C – This section lists matters that must be cleared before or at closing. If these items are not cleared, they will appear on Schedule B of the insurance policy. 
• Schedule D – This section lists all parties who will receive any part of the insurance premium.

 
Once the transaction is closed and funded, you receive a policy of title insurance with only the exceptions to coverage disclosed on Schedule B of the Commitment and any unresolved matters listed on Schedule C. So, read the Commitment carefully!
 
What is covered?  An owner’s policy protects the buyer against losses due to ownership problems that originated prior to the date the policy was issued. In other words, losses that originated before you became the owner of the property. Below are a few examples of what a standard policy may cover:

• Fraud;
• Forgery of title documents in the chain of title;
• Undisclosed or missing heirs; unknown or forgotten heirs;
• Mistakes in recording legal documents;
• Undisclosed but recorded prior mortgage, lien, or easements;
• No right of access to and from the land;
• Inadequate legal description; and
• Deed not joined by a necessary party.

 
What is not covered? Title insurance is not a guaranty of title. The title insurance company is not promising perfection of title but is instead reviewing the title and letting you know whether they are willing to insure title and under what terms they are willing to insure title. Defects created after the policy is issued or defects you create or knew about are not covered. Additionally, any claims related to the exclusions and exceptions in the policy are not covered. Again, it is important to carefully review the Commitment.
 
How much does title insurance cost, and can I shop around for a better rate? Title insurance in Texas is fully regulated and enforced by the Texas Department of Insurance (TDI). Coverage may only be offered on the forms promulgated by the Texas Department of Insurance, and only the premium rates adopted by the TDI may be charged. This means that you pay the same premium at each title company. What you can shop for is good customer service, a reputable title company, and knowledgeable escrow officers!!! 
 
For more information you may visit the Texas Department of Insurance at http://www.tdi.texas.gov/index.html.   
 
Banahan & Martinez, PLLC serves as a fee attorney office for American Title Company of Houston and can be reached at (281) 394-3122 or by email at info@bmlawhouston.com.