WHAT EXACTLY IS TITLE INSURANCE?

In Texas, the two most common types of title policies are “mortgagee policy of title insurance,” which protects lenders, and “owner policy of title insurance,” which protects property buyers. Title insurance protects you and your lender if someone challenges or encumbers your title to real property because of title defects that were unknown when you bought the policy.

Most lending institutions will not loan money to purchase a residence or other property unless you buy a "mortgagee" title policy. A Mortagee policy protects the lender´s investment if a title defect voids your title. This policy covers up to the amount of the principal on your loan and will repay the balance of your mortgage if a claim against your property voids your title. Mortgagee policies remain in effect until the loan is repaid. Most lenders will require you to buy a new mortgagee title policy if you refinance your home. When the new loan pays off the existing loan, the old mortgagee policy expires. You are entitled to a premium discount on a new mortgagee policy if you refinance within seven years.

When you buy a house, the title company also issues an owner´s policy, unless you reject it in writing. The owner´s title policy protects you, as the purchaser, against the covered risks and the specific kinds of claims listed in the policy. When you buy a house and purchase a mortgagee policy, a title company will automatically issue an owner policy unless you specifically reject it in writing. An owner policy only covers you up to the value of the property at the time you purchased the policy. It does not cover any increase in value, unless you purchase a special “increased value endorsement.” An owner policy of title insurance remains in effect as long as you or your heirs own the property or are liable for any title warranties made when you sell the property. You should keep your owner policy, even if you transfer your title or sell the property.

In Texas, title policy forms are standardized. This means the policy language is the same, regardless of the company. It’s important that you read your policy carefully because different companies may describe their coverage exceptions differently. Pay special attention to Schedule B of the policy, which explains any limitations, exclusions, exceptions, and special conditions.

Whenever you are planning to close on the purchase of real estate in Texas, you should consult with a lawyer experienced in reading and undertanding title insurance policies, expections, surveys and earnest money contracts. San Antonio Attorney Trey Wilson is experienced in real estate law, including how to file a title insurance claim, understanding title insurance coverage and exclusions / exceptions. He may be contacted at R L Wilson, P.C. Law Firm by calling 210/223-4100 or online at www.sa-law.com