Must Know: Title Insurance – What is it, What does it cover and recent rate increase…

Many new home buyers will come across the term “Title Insurance” or “Title Policy” when they are working with Title company during closing process. Also sellers will be informed about it during the property listing process by a Realtor which helps to estimate the listing price by calculating the net amount after all expenses including Title insurance paid by sellers. I have come across this question from many of my clients and it’s time to write a post on it.

What is Title Insurance?
Title insurance is a very important part of the real estate transaction process. “Title” in real estate terms means that you are paying for the right to occupy and use your land. Part of the price paid for title will be for the improvement, or the actual home, but the major cost of most property is the land itself. It is important to understand this, because the title may be restricted by rights and claims of others; this could in turn limit your use and enjoyment of the property and even bring financial loss. Title insurance protects you from this scenario.Title insurance is required for any new mortgage or refinancing deal to show the title is clear. And the cost of the policy set by the state.

What does it cover?
Title Insurance is the only insurance which is paid once and protects you from financial losses on the claims from past while most insurance premiums are charged annually and protect you from future problems. Title Insurance is a form of indemnity insurance predominantly found in the United States which insures against financial loss from defects in title to real property and from the invalidity or unenforceability of mortgage liens.

What’s role of Title Company?
Title company issues the title insurance giving assurance that they will cover any claims arises after closing the transaction. Basically, the role of title insurance is to eliminate risk prior to issuance of coverage for both the buyer and the title company. A claim or loss is a losing situation for all involved and every attempt is made to eliminate this possibility early on. Title insurance companies therefore have every incentive to make sure the risk is minimal. Therefore, the title company will begin researching the history of the title with public records. An agent for the title company investigates the title chain to determine if any “material objections” exist. Material objections are the results of earlier documents that did not transfer the title clearly.

Examples are:

  • Deeds, wills and trusts that contain improper wording or incorrect names;
  • Outstanding mortgages and judgments, or a lien against the property because the seller has not paid his taxes
  • Easements that allow construction of a road or utility line
  • Pending legal action against the property that could affect a purchaser or
  • Incorrect notary acknowledgements.

What if something is missed or someone initiates a claim?
Any of the above problems will be identified and corrected as early in the process as possible. However, sometimes there are undetectable problems which can surface later and cause financial hardship or even loss of the property.

Some examples are:

  • A forged signature on the deed, which would mean no transfer of ownership
  • An unknown heir of a previous owner claiming ownership of the property
  • Instruments executed under an expired or a fabricated power of attorney or
  • Mistakes in the public records.

If one of these scenarios becomes a legal issue for you at some point down the road, that’s where title insurance becomes so valuable. The title company has certified that the title is transferable and is responsible for defending against claims as they arise. This could involve perfecting the title or paying out for valid claims. Besides being extremely stressful, these are often complicated and expensive legal proceedings. However, the title company will have the responsibility to take care of these, and title insurance saves you any costs involved.

What is the recent rate increase?
Texans buying or refinancing started paying more for title insurance last week because of a price hike quietly approved in March by the state insurance commissioner.The 3.8 percent increase is the first in 22 years and will generate an estimated $53 million more per year for Texas title companies and their underwriters, as report says.

University of Texas professor David Eaton estimates that Texas consumers would save, on average, $700 per policy if the state stopped fixing the price of premiums. He has found that states that don’t regulate title insurance have the lowest rates. Those with the most regulation — Texas and Florida — have the highest.

As the title insurance rate is set by State of Texas, it should be same for a particular property doesn’t matter whichever title company you use to close the transaction. If you want to find out title insurance charged by title company is correct, you can go title insurance calculators like this one, Stewart Title Insurance Calculator. Title insurance is a necessary purchase for home ownership, and we do not transact any real estate purchases without it.


About Vijaianand Thirnageswaram

I am a Proud Realtor of Texas, trying to guide and help clients to find their dream home and educate them to buy them for right price. I am also a Candidate for CFP who has more financial knowledge which allows me share and educate clients in any financial decision making process.

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