Frequently Asked Questions
What is Title Insurance?
Title insurance is a contract of indemnity between the insured and a title insurance company. The form of this contract is set by the Texas Department of Insurance and is commonly called a title insurance policy. Should title, as insured, to the land or affecting the lien of the mortgage be challenged, the title insurance company has several options to fulfill its obligations to the insured under the title insurance policy. These options include paying the claim, initiating all necessary legal proceedings to clear the title to the property, indemnify the insured, reinsure at current value without making exception to the covered title risk, indemnify another title insurer that reinsures the title without making exception to the covered title risk, secure a release of the covered title risk, or take a combination of these actions. The maximum liability under the policy is limited to the amount of insurance shown in the policy.
A policy of title insurance is based upon an examination of the public records that affect title to real property and represents that judgment of the company as to the insurability of the title. It is not an abstract of title or a representation or warranty as to title.
Is There Only One Type of Title Insurance Policy?
No. There are two major types of title insurance policies. The Owner Policy of Title Insurance insures the owner against certain title risks and the Mortgagee Policy of Title Insurance insures the lender that the mortgage is a valid lien against the property.
What Protection Do You Get from an Owner Policy of Title Insurance?
The Owner Policy of Title Insurance insures the owner against loss or damage sustained by the insured if title is not vested as shown in the policy; if there are any defects, liens or encumbrances not set out in the policy; if there are liens for labor or materials having an inception at or prior to the policy date; if there is a lack of a legal right of access to and from the land; or if there is a lack of good and indefeasible title to the land. The Owner Policy of Title Insurance provides title insurance protection to the insured for as long as the insured or his heirs, or successors own the property or are liable under warranty of title made upon sale of the property.
The premium for the Owner Policy of Title Insurance is paid when the policy is issued; there are no recurring premiums. An Owner Policy of Title Insurance does not insure any state of facts which an accurate survey would show, including conflicts and boundary lines and encroachments or protrusions of improvements. These survey matters may be insured if the company is provided with an acceptable survey and an additional premium is paid. In no case does the Owner Policy of Title Insurance insure an actual amount of land.
Who Uses Mortgagee Policies of Title Insurance?
A Mortgagee Policy of Title Insurance is usually required by a lender of money. The lender must be assured that the loan is secured by a valid lien against the land. As payments are made under the mortgage, the coverage provided by the Mortgagee Policy of Title Insurance decreases. The Mortgagee Policy of Title Insurance provides no title insurance to the owner of the land. Under foreclosure of the loan, the coverage provided under the Mortgagee Policy of Title Insurance continues in favor of the foreclosing lender so long as the lender holds title to the land, or has a lien from a buyer from the lender or is liable under the warranty in a deed to a third party.
Is Title Insurance Like Other Insurance?
No. A policy of title insurance insures a state of facts that exist at the policy date. It does not cover subsequent events. Such insurance is sometimes called “retrospective” insurance since it insures against matters which occurred in the past.
Can One Get Title Insurance on Any Property?
Title Insurance is available for almost every property. However, there are many facts which affect property which would not be economically sound for a title insurance company to accept as a risk. The title insurance company may choose to insure the land by taking exception for such risk from the policy coverage. In this case, the title insurance company provides title insurance for matters not excepted to in the policy.
Can a Defective Title Be Cured?
A title insurance policy does not insure against known title problems; neither does it create or have the obligation to cure title defects, liens or encumbrances or other problems which are found in the chain of title. Sometimes an affidavit, deed or other instrument will allow the title company to assume the risk. Other times a court order will be required. Title companies do not provide legal advice or draw legal papers. Only licensed attorneys are authorized to draw legal papers.
What is the Sense of Paying a Premium for a Title Policy if an Attorney has Carefully Searched the Records?
There are many hidden defects which may affect the title to real estate. Some examples are:
- False Representation
- Lost Wills
- Mistakes at Law
- Mistakes in Description
- Undisclosed Heirs
- Clerical Mistakes
- Illegal Trusts
- Defective Acknowledgments
These defects are of such a nature that they may not appear in the records.