In state of Texas, there are two major types of title insurance policies:
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Owner Policies
Texas owner policies protect the new owners from the stated risks in the policy. When you buy a house and purchase a loan policy, a title company will automatically issue an owner policy unless you specifically reject it in writing. The price of this type of policy is usually included in the closing costs. An owner policy only covers owners up to the value of the property at the time of purchase of the policy itself. It never covers increases in the property’s value, unless an increased value endorsement is purchased at the time.
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Loan Policies
Most lenders require that new owners buy a loan insurance policy, also known as a mortgagee policy.. Loan policies pay off the balance of existing mortgage if a claim against the property voids the title. A loan policy covers up to the amount of the principal on the issued loan. Loan policies are effective until the loan has been repaid.
A Texas real estate title insurance strictly protects the new property owners from claims of ownership, outstanding debts of previous owners, or other title problems that may not be obvious before the purchase is made.
Before finalizing a real estate property purchase, a title company checks the public records such as deeds, mortgages, wills, divorce decrees, court judgments, tax records, liens, encumbrances, and maps for any and all potential problems with the property. Once they clear your title and finalize the sale, the title company company will be legally obliged to defend the new owners in court if a claim against the property is made, with certain limitations. If the title company loses, it will pay the new owners for covered losses up to the amount specified in the issued title insurance policy.
Texas Title Insurance: Types of Title Policies
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All title policy forms in Texas are standardized. This means the policy language is the same, regardless of which company sells the policy.
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The TDI (Texas Department of Insurance) assigns title insurance premiums. These rates are calculated based on the property’s sale value on a sliding scale.
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A title policy never guarantees that owners will be able to sell the property or borrow money on it, or that they will not lose money if they decide to sell it.
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A new owner only pays a title policy premium once, at the closing of the property sale (purchase). The buyer and seller can negotiate and decide who pays the premium.
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If a notice of a previous lien is received, owners must contact their title company right away and follow the policy’s claim filing procedure to avoid jeopardizing their claim.
Important Notes About Texas Title Insurance
In case your title is challenged in court, the title insurance will cover the owners for the following risks:
Lien Issues
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If someone files a lien against the title because a previous owner failed to pay any fo the following:
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a judgment, tax, or other special assessment
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a mortgage or deed of trust
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charges made by homeowners or condominium association
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Errors or Omissions
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Leases, contracts, or options on the property were not recorded in public records.
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The title company failed to inform the owners about legal restrictions on how the property can be used.
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If an easement has been in place without being listed in public records and the owners have no prior knowledge about.
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If personnel involved did not properly sign the chain of title, or if a notary public made an error on the document, made an error in recording the document at the county clerk’s office, or failed to present the deed based on statutory requirements.
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A deed or other document in the chain of the property title is invalid as a result of forgery, fraud against the rightful owners, a signature given under force, or a signature given by a person who is legally incompetent to sign or claiming someone else’s identity.
Texas Title Insurance: What's Covered
A Texas title policy will typically not cover the following issues:
Mistakes or Defects
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Problems with the title that have occurred after the purchases of the property and the policy have been completed.
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Problems created by the owners or those are unrelated to your or the lender’s property interests.
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An unrecorded title defect that the owners had prior knowledge of and still allowed to remain in place without notifying their title company.
Financial Issues
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Penalties if you don’t pay for your property.
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Certain taxes and assessments.
Rights Issues
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Losses occurred as a result of rights claimed by “parties in possession,” such as renters or anyone else occupying the property.
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Texas Homestead, community property, or survivorship rights of a policyholder’s spouse.
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If the property is close to a body of water, or has a water stream flowing through it, claims from other people who may have certain rights related to this situation.
Other Issues
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Condemned land, unless a condemnation notice appeared in the public record on the policy date or the condemnation occurred before the policy date.
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Restrictive covenants that limit how new owners may use the property and stating the requirements for buildings built on the property.
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Building and zoning ordinances violations, other laws and regulations violations related to land use, land improvements, land division, and/or environmental protection.
