We had a huge discussion on Houston Real Estate Radio with Jess Bailey about title insurance and issue of whether or not homeowners need it. She’s a real estate attorney in The Woodlands, Texas, and she and I both agree you need title insurance – even if you are purchasing from a relative.
It’s interesting to me that title insurance insures the past and all other forms of insurance cover the future only. On most insurance you pay premiums annually or quarterly. With title insurance, you only pay the one time premium at point of purchase – usually at the title company.
A house is usually a family’s biggest investment, so protect it in the years ahead. Now this is different from your homeowners insurance which covers things like fire and theft. Flood Insurance may be required if your home is in a 100 year flood plain.
When you buy a house you are purchasing the land, the structure, and the title to the property which is the right to occupy and use the home. In Texas you can also own below the ground rights even if you don’t own the land – this is referred to as mineral rights.
There are two types of title insurance and most people don’t realize this. The lender also gets a title policy when you get your owners policy. Lenders usually require this so their investment is secured.
There is no expiration date on a title policy. It will last your lifetime and your heirs and could still cover you after you have sold the property.
As a buyer, you want to limit your title claims and losses and that is why you get a title policy. Title insurance begins with a search of public land records affecting the real estate being purchased. An examination is done by the title agent or attorney on behalf of its underwriter to determine whether the property is insurable. They are looking for any “material objections” to the title. Frequently, documents that don’t clearly transfer title are found in the “chain of title”, or history that is created from the records in the title search. Some documents that can be concerning are deeds, wills, trusts, judgements, liens, outstanding mortgages, easements, and any pending legal action.
The title search discloses any potential problems with the property being purchased. Sometimes things can easily be corrected. Other times, they cannot and that could keep you from being able to get title insurance on the property. If you can’t get title insurance on the property, I recommend you do not purchase that property.
Any hidden title problems that comes up after your closing should be covered by your title policy. So for example, if there was a forged signature on the deed, the property did not transfer to you. Another example would be an heir that emerges and claims the property. So your title policy gives you protection so you don’t have to pay to fight that battle, they do. The title insurer will pay for defending against an attack on title as insured, and will either perfect the title or pay valid claims. You should not have to pay anything out of pocket when you have title insurance. You already paid it at your closing!