The Ins and Outs of Title Insurance
If you have ever bought a home you have probably purchased Title Insurance or maybe it was purchased for you. The vast majority of real estate transactions will include this policy. If there is a loan involved, the lender will require you to have title insurance. So what is it?
An Insurance Policy for Title?
Title insurance protects the home purchaser from defects in title. It protects your ownership of the property. When buying a home the title company will perform a title search. They will check county records and public data in order to determine the history of the property. Who owned it and when, what liens have been placed on the property, if the liens were paid off or if any lawsuits have been filed against the property. This is important to ensure the seller has the proper rights to sell the property and nobody additional can come along and claim otherwise.
Provided that the title is clean, the title company will issue a insurance policy that protects the buyer from any claim that may arrise. For instance, say a long lost relative of a previous owner comes along and claims they actually inherited the property. The title policy would provide you an attorney to fight the claim in court and potentialy pay you back the purchase price of the property. Another common example would be a lien. Maybe the previous owner took out a second mortgage to put in a pool or remodel the kitchen but that lien never got filed with the county. Then after buying the home the lien gets filed. The lien stays with the property so the buyer would be on the hook for it. But with title insurance the buyer is protected and the insurance policy will take care of the lien.
What's the Cost?
The cost for title insurance in Texas is set by the Texas Department of Insurance. As discussed in our article about seller closing costs, the formula is a bit complicated. See below.
One thing to note is that this cost is a one time cost. Unlike other insurances, you don't have to renew it every year. It exists for as long as you own your home.
Who Pays for It?
The cost of title insurance in Texas is negotiable. Either the buyer or the seller can pay for it, although traditionally it is paid for by the seller. Basically it is the seller guaranteeing that there aren't any defects with the title. But in a hot sellers market with multiple offers it is not uncommon to see buyers paying for it themselves. On rare occaisions the cost might be split by the two sides.
Another important aspect to this is that technically there are 2 title policies if there is a loan. One is the owner's title policy and the second is the lender's title policy. The title company will do what is called a simulatanious issue which keeps you from having to pay for it twice. The lender policy will only cost an additional $100. This allows both the buyer and the lender to be protected in the event of a claim.
Endorsements are add ons the policy. Some of the more common ones are:
- Area and Boundry Exception - This one adds additional coverage to include the property boundries. It protects you in case there is a dispute over the boundries such as where the fence is located or driveway, etc. We recommend all clients include this coverage.
- Tax Amendment - Often required by lenders if the property taxes aren't paid yet.
- Condominium Endorsement - Provides coverage that the condo is actually part of the condo association.
- Planned Unit Development Endorsement - Protects lender for properties that are in a convent or home owners association.
- Minerals Endorsement - Protects the property if there are mineral leases.
The endorsements purchased will mostly be decided by the lender and the circumstances of the property.
What Do I Do If I Need To Use My Policy?
If you are buying a home in Texas it is important to understand what this couple thousand dollars is purchasing you. Also important to know is what to do if and when you need to use it. Simply call the title company that closed your home and they will assist you. They will get you in touch with an attorney to protect you. The title company issued the policy and their attorney is most likely who will be handling the issue.
Hopefully you now have a better understanding of what a title policy is and what it covers. Please contact us if you have any questions. As always, if you are looking to buy or sell a home please reach out to us. We will gladly assist you.