Frequently Asked Questions

Frequently Asked Questions in the Real Estate and Title Industry

 

WHAT IS TITLE INSURANCE?

Title insurance is a policy that protects the insured from a financial loss related to the ownership of a property. A property’s title relates to all your legal rights to own, use and dispose of real estate, both land and improvements. Title insurance protects against any possibility of future loss in the event legal rights of ownership to a specific property are challenged. The two most common types of title insurance are: an owner’s title policy and loan policy.

IS TITLE INSURANCE REQUIRED?

Texas does not require title insurance. The lender will require you to buy a Loan Policy of Title Insurance to protect their interest.

WHAT TYPES OF POLICIES ARE AVAILABLE?

The two most common types of title insurance are: an owner’s title policy and loan policy. The loan policy protects a lender in a real estate transaction; they have first lien position and good equitable title up to the amount of the value of this policy, which is typically the loan amount. A loan policy is effective for as long as the mortgage is in force. An owner’s policy protects the buyer or new owner of the property against loss up to the full value of their policy, which is typically the amount of their investment or the sales price of the property. The owner’s policy is effective for as long as the owner or their heirs own the property. An owner’s policy in Texas is optional and may be refused but not advisable. All prudent lenders will require a loan policy.

WHO NEEDS TITLE INSURANCE?

Buyers, lenders and sellers all benefit from title insurance. Lenders usually require a loan policy to protect their loan. An owner’s title policy protects the new owner’s interest in the real estate purchased from claims, and your title insurer may assume responsibility for all legal expenses covered related to the defense of your property, if a challenge is ever made. The seller benefits from the policy because it represents a guarantee that the property being sold is free of any liens and encumbrances.

WHY IS TITLE INSURANCE IMPORTANT?

When any real estate is purchased, it’s prudent to obtain homeowners coverage to cover loss from fire, storm damage or theft. Some purchasers of residential property will purchase mortgage life insurance to pay the debt in full in the event of the mortgager’s death. Neither of these policies cover one of the most important aspects of any real estate purchase – the rights of clear and equitable title and ownership of the property. An owner’s policy is the only way to ensure complete title protection for new owners and their investment. A property’s title relates to all your legal rights to own, use and dispose of real estate, both land and improvements. Title insurance protects against the possibility of future loss in the event legal rights of ownership to a specific property is challenged. The two most common types of title insurance are: an owner’s title policy and loan policy.

The loan policy protects a lender in a real estate transaction, ensuring they have first lien position and good equitable title up to the amount of the value of the policy, which is typically the loan amount. A loan policy is effective for as long as the mortgage is in force.

An owner’s policy protects the buyer or new owner of the property against loss up to the full value of their policy, which is typically the amount of their investment or the sales price of the property. The owner’s policy is effective for as long as the owner or their heirs own the property. An owner’s policy in Texas is optional and may be refused, but this is not advisable. All prudent lenders will require a loan policy.

WHAT IS THE DIFFERENCE BETWEEN TITLE SEARCH AND TITLE EXAMINATION?

Some industry investors mistakenly believe a title search will be able to offer the protection needed for purchasing real estate. In reality, a title search is simply an abstract or a report/record of all county recordings filed against a particular property, and includes current vesting and third- party claims filed of record. Title companies will offer a “search” or “abstract certificate” at a very reasonable cost, but it’s not insurance. Once title is requested, a title company will take the search documents and examine each and every one to determine:

  • All prior owners properly divested themselves of title
  • All prior liens were released from the property
  • Any documents are filed against a particular name or names, etc.

The compilation of the resulting title commitment will explain all findings and necessary requirements to cure any title issues so that good and equitable title may be delivered via the final title policy.

CAN A BUYER DELIVER THE TERMINATION OPTION FEE TO THE TITLE COMPANY?

If the termination option fee is delivered to the title company, the buyer is at risk of losing their otherwise unrestricted right to terminate the contract. The option fee is required to be delivered to the seller’s agent or the seller, not the title company, per paragraph 23 of the TREC One to Four Family Residential Contract (Resale) within three days of the effective date of the contract.

Paragraph 23 also specifies that the time for performance is strictly complied with. If the termination option fee is delivered to the title company but the title company does not provide it to the seller or seller’s agent within 3 days of the effective date the buyer no longer has a valid termination option.

In summation, if the option fee is delivered to the title company, the contract requirements have not been satisfied, and the buyer does not have a valid termination option.

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