Question: What is title insurance? Why do I need it?
Answer: Before you close on a new home, the title company does a title search that includes examining the deed, tax records and survey. The point is to make sure that there are no existing liens or restrictions on the property you want to buy. A history of the property ownership is also examined.
If all is as it should be, the title company issues title insurance on the property. This is designed to indemnify you and protect your financial interests in case there is some kind of defect with the title. In other words, if something pops up 10 years down the road – say, a long-lost heir of a past owner shows up, or there was a mistake in a public record, it turns out something was forged somewhere in the chain of ownership or there is some kind of public right-of-way that crosses your property – your title insurance policy is your protection.
Usually a one-time premium for this service is paid at closing, and the policy is valid as long as you (or your heirs) own the property.
Typically, the seller of the property buys the title insurance, though this is not law. You can negotiate who pays for it. However, title insurance is highly regulated in Texas by the Department of Insurance, a state agency. Rates and forms are standardized, which means that all title companies charge the same for the policy – it’s a sliding scale based on the price of the property. The language of the policy and premium cost are the same, too, so title companies distinguish themselves through their service, not product.
Having said all that, you should know that there is a second kind of title insurance. The kind we discuss above is an owner’s policy. But if you are financing your home – that is, taking out a loan – you will also need a lender’s title policy for the amount of the loan. This protects your mortgage holder, and it remains in effect until you pay off the loan, refinance the loan or sell the property.
What should you expect to spend on a title policy? We had a home close late in 2018 with a sales price of $1,923,500. The total policy cost for both owner’s title insurance policy and lender’s title insurance policy was $10,072.