Title Insurance
An insurance policy protecting property owners and lenders against financial loss from defects in title. Unlike other insurance that covers future events, title insurance protects against past events that affect current ownership.
Understanding Title Insurance
Title insurance provides financial protection against losses arising from title defects existing at the time of purchase. Common covered risks include forgery, fraud, undisclosed heirs, recording errors, boundary issues, and liens. The policy pays for legal defense and covers losses up to the policy amount.
Two types of policies exist: owner's policies protecting the buyer, and lender's policies protecting the mortgage holder. Lender's policies are required for financed purchases. Owner's policies are optional but strongly recommended. Policies are issued after a title search and examination.
Title insurance is a one-time premium paid at closing—there are no annual renewals. The coverage continues for as long as the insured (or their heirs) have an interest in the property. Lender's policies decrease with the loan balance and expire when the loan is paid off.
For curative title investors, title insurance availability is often the benchmark for 'clear title.' If a title company will insure, the title is generally considered marketable. Quiet title actions and other curative work aim to reach the point where title insurance is available.
Real-World Example
A buyer pays $1,200 for an owner's title insurance policy on a $300,000 home. Three years later, a construction company files a mechanic's lien claiming work was done but unpaid before the purchase. The title insurance company pays $15,000 to settle the lien and $8,000 in legal fees, protecting the owner from the pre-existing claim.
Texas-Specific Information
Texas title insurance is regulated by the Texas Department of Insurance, which sets uniform rates. All title companies charge the same premiums for the same coverage. Texas title insurance policies are issued through one of four underwriters. The Texas standard policy includes unique provisions reflecting Texas homestead and community property laws.
Related Terms
Title Search
An examination of public records to trace the chain of ownership and identify any liens, encumbrances, or defects affecting a property's title. Title searches are essential for real estate transactions and title insurance.
Clouded Title
A title with unresolved claims, liens, or defects that cast doubt on the true ownership of property. Clouded titles prevent sales, refinancing, and title insurance until the issues are resolved.
Chain of Title
The chronological sequence of historical transfers of title to a property, from the original grant to the current owner. A complete chain establishes ownership through an unbroken series of conveyances.
Warranty Deed
A deed in which the grantor guarantees clear title and promises to defend against all claims. A general warranty deed provides the strongest title protection, warranting the entire chain of title back to the property's origins.
Marketable Title
Title that is free from reasonable doubt as to who the owner is and free from material liens or encumbrances. Marketable title can be sold or mortgaged without significant risk of legal challenges.
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