About Title Insurance
It is protection against loss if a covered defect is found in the chain of title to your property.
To get loans, people often use property as collateral (security against nonpayment). If someone doesn’t pay back their loan, the lien holding lender has a legal right to sell off the property to get their money back, even if the property has since sold to a new owner. This is because the lien (claim to a property as payment on a debt) is on the property. Unless the debt is paid off and the lien released, the lien stays with the property even when it changes ownership.
With today’s booming refinance and home equity markets, lenders’ interest in properties has increased exponentially and both lenders and county recorders are challenged to keep up with the documentation. So it’s more likely than ever that an unrecorded or unreleased interest in your property could be out there, making title insurance more important now than ever.
Errors and information contained in deeds, mortgages, public records, etc.
Liens – claims against the property, or prior owner, that affect the property and have not been paid or released. Examples include prior mortgages, judgments against prior owners and taxes.
Claims to Ownership – someone claiming that they had an ownership interest in the property that was not accounted for in a prior transfer, such as the spouse of a former owner or heir of a deceased former owner.
Invalid Deeds – such as a purported transfer by someone who did not own the property or who was not mentally competent.
- Limitations on the use of the property
- Mechanic’s liens
- Easements, right of way, and other legal obligations noted in the deed or public records
- Restrictive covenants limiting certain types of use of the property
In Texas, title insurance rates are set by the Texas Department of Insurance and are based on the sales price of the property or amount of the policy being issued. Please refer to our resources page to calculate the current Texas title insurance premium rates.
If the insurance cost is the same, how do I choose a title company?
Title companies can charge fees other than for the insurance itself, such as an escrow fee and courier fees. You should ask any prospective title insurance company for a list of fees. Title companies, even offices of the same company, vary greatly in the quality of customer service they provide. Recommendations from friends, realtors and other advisors are invaluable in finding a title company location that provides excellent customer service. It is your home and your money, so you deserve to be kept “in the loop” on your transaction.
About the Closing Process
Closing, also known as settlement, on a property sale means legally transferring ownership from one party to another. This process culminates in the signing of contracts and passing over the keys from the seller to the buyer.
Closing costs are charges that are paid when the property changes hands. These costs cover services required to process the transaction, including title work, appraisals, inspections, document preparation, recording fees and other expenses. In many cases, there are also loan origination fees (charged by the loan officer to find the right loan and secure approval) that are part of the closing costs.
At closing, you typically pay 1% to 2% of the purchase price for “closing costs” and another 1% to 2% for “prepaid items.” Closing costs usually fall into four primary areas:
- Mortgage Cost: loan origination fee, points, document preparation, commitment fee, underwriting fees
- Outside Vendor Cost: appraisal, credit report, flood determination fee
- Total Cost: settlement fee, title/abstract search, title insurance premium (lenders policy – required and paid for by buyer), owners title insurance policy (Optional and paid for by buyer), plat drawing
- Government Fees: title recording fees
Buying a home or property is one of the biggest decisions and financial investments you’ll make in your lifetime. Title insurance protects your claim to your property from potential problems caused by mistakes and irregularities that may have occurred in the past. Dollar for dollar, it’s one of the most cost-efficient forms of insurance for property owners. It’s relatively low, one-time premium covers you against legal problems that could cost tens of thousands of dollars and even the loss of your property.
Going through all the steps involved in a legal transfer of property varies from one sale to another, but traditionally most residential sales close in about a month. Signing the papers and handing over checks and keys will take about an hour.
Your date of possession is usually part of the purchase agreement and is often determined by local practices. On residential properties, it’s challenging to close and move in the same day, and it can be risky to plan it that way. If a closing takes longer than expected or gets delayed by even a day, you’ll find yourself pressed to manage the move and perhaps stranded between properties. And even if you could move that day, why would you want to? Why not take the rest of the day to celebrate your momentous purchase then get plenty of rest and handle the big move tomorrow.
Buyers and sellers both need a form of photo ID, such as a valid driver’s license or passport. Any money you owe should be in the form of a cashier’s check or can be wired to the Title Company.
Land is as old as time itself. Like the structures built on it, land is “real property,” meaning that it can’t be moved or hidden. Because real property is valuable, many people want to claim ownership. “Titles” came about as a means of legally proving who owns the property.
Through the centuries, however, a parcel of property may change hands dozens of times. At any point along the chain of ownership, problems may arise that cast a “cloud” over a title, putting a claim of ownership in doubt. Such as:
- Long lost relatives or past owners could show up, sometimes from long ago, with a claim to the property that supersedes yours.
- Sometimes people fraudulently sell houses that don’t belong to them. For example, the husband of a divorcing couple could forge the signature of his wife, and abscond with the proceeds of the sale.
- In a court of law, the rights of the wife could be upheld and the property could go to her, no matter how much money the unsuspecting purchaser had placed in the house.
Through title insurance. It protects your claim to your property from potential problems caused by irregularities that may have occurred in the past. Dollar for dollar, it’s one of the most cost-efficient forms of insurance for property owners. Its relatively low, one-time premium covers you against legal problems that could cost tens of thousands of dollars-and even the loss of your property.
An escrow is an arrangement in which a disinterested third party, called an escrow officer, holds legal documents and funds on behalf of a buyer and seller, and distributes them according to the buyer’s and seller’s instructions.
People buying and selling real estate often open an escrow for their protection and convenience. The buyer can instruct the escrow officer to disburse the purchase price only upon the satisfaction of certain prerequisites and conditions. The seller can instruct the escrow officer to retain possession of the deed to the buyer until the seller’s requirements, including receipt of the purchase price, are met. Both rely on the escrow officer to carry out faithfully their mutually consistent instructions relating to the transaction and to advise them if any of their instructions are not mutually consistent or cannot be carried out.
An escrow is convenient for the buyer and seller because both can move forward separately but simultaneously in providing inspections, reports, loan commitments and funds, deeds, and many other items, using the escrow officer as the central depositing point. If the instructions from all parties to an escrow are clearly drafted, fully detailed and mutually consistent, the escrow officer can take many actions on their behalf without further consultation. This saves much time and facilitates the closing of the transaction.
An easement is a right to use the land of another for a special purpose. For example, the city may have plans to build a sewer line sometime in the future. If the sewer line runs through the back of your yard, and if the city has an easement on the underground portion of your property, this might cause your prize roses to be dug up, or prevent you from building a pool in your backyard.
If a property owner fails to pay his or her taxes, the IRS can obtain a lien on the property, which gives the government a claim to that property in case of nonpayment of debt. If the owner sells the property without settling the tax lien, the IRS can legally get the new property owner to pay the original property owner’s back taxes. And if the new property owner fails to comply, they can lose their new property.