What is title insurance?

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

Most lending institutions will not loan money to purchase a house or other property unless you buy a “mortgagee” title policy. This policy protects the lender’s investment by paying the mortgage (loan amount) if a title defect voids your title. When you buy a house, the title company also issues an owner’s policy, unless you reject it in writing. The owner’s title policy protects you against the covered risks set out in the policy. Read your policy carefully. Check the title policy’s legal description of your land against your survey and your earnest money contract before the closing. Your title policy tells you how to file a claim and describes your coverage, including limitations, exclusions, exceptions, and special conditions.

Caution! A title policy does not guarantee that you can sell your property, that you won’t lose money if you sell it, or that you can borrow money on it.

Your title policy covers actual losses up to the policy amount at the time of a claim. The policy amount is the sale price of the property on an owner’s policy and the principal amount of the loan on a mortgagee policy. The policy does not cover increases in value unless you buy an increased value endorsement.

General information about title insurance and title companies

1 In Texas, the two most commonly sold title policies are the mortgagee’s title policy and the owner’s title policy. The form language found in Texas title policies is determined by the state; title companies may sometimes describe their particular exceptions to your coverage differently, however. Therefore, you should read your title commitment and title policy carefully.

2 You may choose the title company you want. You don’t have to use a title company selected by a real estate agent or lender. To verify that the Texas department of insurance (TDI) has licensed the title company you’re considering, call TDI’s Consumer Help Line 1-800-252-3439 (463-6515 in Austin)

3 All title companies charge the same rates, which are set by TDI. You pay a premium only once, at closing. The buyer and seller should negotiate who pays the premium for an owner’s title policy.

4 Some title companies attempt to add on extra charges for tax certificates, escrow fees, recording fees, and delivery expanses. You should review these charges carefully and negotiate or demand documentation of the true costs involved for these services. You have the right to receive the closing papers a day in advance of the closing if you request them. You may also have an attorney attend the closing with you.

5 Before issuing a policy, the title company checks for defects in your title by examining public records, including deeds, mortgages, wills, divorce decrees, court judgments, tax records, liens, encumbrances, and maps. The title search determines who owns the property, what outstanding debts are against it, and the condition of the title. The title company also handles the property closing and holds earnest money in a trust account until the purchase is complete.

6 A title company must defend your title in court, subject to certain limitations. If it loses the court case, the company pays covered losses up to the amount of the policy.

How long should I keep my policy?

An owner’s 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 policy, even if you transfer the title.

What happens if I have a claim against a title company that fails?

The Texas Title Insurance Guaranty Association pays claims against insolvent title companies and agents. Payments can’t exceed $250,000 per claimant or $250,000 per policy.

What if I refinance my home?

Most lenders require borrowers to buy new mortgagee title policies when refinancing. When the new loan pays off the existing loan, the old mortgagee title policy is no longer in effect. A title company issues new policies in connection with new loans. You are entitled to a premium discount if refinancing occurs within seven years of the original loan date.

What does a title policy cover?

If someone claims an interest in your property, the title company will pay for any actual loss and defend your title in court when

• 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.

• 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 the 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.

• Leases, contracts, or options on your land weren’t recorded in the public records and disclosed to you.

• 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.

• 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 the right to travel from your property to a public street or road.

• Other liens or encumbrances on your title exist but aren’t listed in the policy exceptions.

What does a title policy not cover?

Title insurance doesn’t protect you from problems you create or problems unrelated to your or the lender’s property interests. Some non-covered items include:

• Losses listed under your policy’s exclusions or exceptions. Discuss these exceptions with your attorney before closing any real estate purchase. Schedule B or your title policy lists exceptions and exclusions.

• An unrecorded title defect you knew about or allowed to occur.

• Problems that occurred after the date of the policy.

• Condemned land, unless a condemnation notice appeared in public records on the policy date and is binding on you even if you bought the land without knowing in was condemned.

• Violations of building and zoning ordinances and other laws and regulations dealing with land use, land improvements, land division, and environmental protection.

• Effects of your failure to pay value for your property.

• Payment, except for your legal right of access to your land, because your deed failed to give you rights to adjacent land you didn’t buy, or to adjacent streets, alleys, or waterways.

• Conveyance of title irregularities arising from a dead person’s estate, a bankruptcy estate, or a trust. Consult an attorney to have these situations explained to you.

• Restrictive covenants limiting how you may use the property and prescribing requirements for buildings constructed on the property. Schedule B of your title commitment and title policy 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.

• Discrepancies, conflicts, or shortages in area, boundary lines, encroachments, protrusions, or overlapping of improvements. Without additional coverage, your policy may not cover any title loss you suffer because of boundary line problems with your neighbors. However, for an additional 15 percent premium, accompanied by an acceptable survey, your policy can insure you against such losses. A title company can decline to insure against specific boundary or survey problems by adding special exceptions to the policy.

• 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 you attorney explain your rights and limitations under the law.

• 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 insures 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 title 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.

• 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.

• Special exceptions added by the title company during the title examination process. These exceptions must specifically describe the particular item excluded, and the company must make you aware of the exceptions. For example, the company must define an exception describing a public utility easement in common language so you can easily locate the information in public records. The title company may charge extra for copies of excepted items.

How do I file a complaint against my agent or title company?

If a dispute arises about your premium or a claim you filed, contact the agent or the title insurance company. Item 10 of your title policy conditions lists the company’s toll-free number.

If you can’t resolve your problem with the agent or company, file a complaint with TDI. Your may obtain and submit a form on TDI’s website, www.tdi.state.tx.us

You may also mail your complaint with the company’s full name, your policy number, which should appear on all correspondence and other documents from the title company to

Texas Department of Insurance
Title Division
P.O. Box 149104
Austin, Texas 78714-9104
Fax: 512-305-7426

The information in this publication is current as of the date of publication. Changes in laws and agency administrative rules made after the date of publication 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.