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.
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A summary of the history of the legal title to a piece of property; all changes in ownership, liens, mortgages and other matter that might affect the title.
Adjustable Rate Mortgage
Mortgage loans under which the interest rate is periodically adjusted, in accordance with some market indicator, to more closely coincide with the current rates. The extent and number of these adjustments are agreed to at the inception of the loan.
Agreement of Sale; or Purchase and Sale Agreement
A written agreement by which a buyer agrees to purchase and a seller agrees to sell according to terms set out in that agreement.
The reduction of a loan or debt by periodic payments according to agreed upon terms. Your mortgage is being amortized every month that you send a payment to the lender.
A procedure in which a qualified individual estimates the value of a piece of property.
The increase in value of real estate due to external circumstances including inflation and other economic conditions.
The final meeting at which the transfer of title of property passes from the seller to the buyer and the consideration, or sales price, is paid to the seller.
Includes all the charges attached to closing. These one-time fees include charges for title insurance, attorney fees, survey, and points charged by the lender of mortgage. These are also known as settlement costs.
A legal document whereby title to real estate is conveyed and transferred from one person to another.
A right to use all or part of the land owned by another for a specific purpose. An easement may, for example, entitle its holder to construct and maintain sewer or utility lines.
The right of a government to take privately owned property for public purposes under condemnation proceedings subject to payment of its fair market value.
Any building, improvement or structure located on a property (such as a wall, fence or driveway) that intrudes upon the property of another.
Any interest, right, lien, or liability attached to a parcel (such as unpaid taxes or an unsatisfied mortgage) that constitutes or represents a burden or charge upon the property.
The difference between the market value of a house and the balance owed on the mortgage, usually referring to the owner's interest or value in the estate.
Money, securities, or other property placed in the keeping of a third party, usually a licensed title agent, until obligations by the seller and buyer, as set out in the escrow agreement, have been fulfilled.
A provision in a title insurance commitment or policy that excludes from liability for a specific title defect or an outstanding lien or encumbrance.
Fannie Mae (FNMA)
Federal National Mortgage Association - A private corporation dealing in the purchase of first mortgages.
Fee Simple Deed
The absolute ownership of a parcel of land. The highest degree of ownership that a person can have in real estate, which gives the owner unqualified ownership and full power of disposition.
FHA (Federal Housing Administration)
A federal agency that insures mortgages, enabling lenders to lend a very high percentage of the sales price.
Fixed Rate Mortgage
A mortgage having a rate of interest that remains the same for the life of the mortgage.
Personal property that is attached to the real property and is treated as real property while it is so attached. Examples: medicine cabinets, window blinds and chandeliers.
A legal proceeding in which real estate secured by a mortgage or deed of trust is sold to satisfy the underlying debt.
Freddie Mac (FHLMC)
Federal Home Loan Mortgage Corporation is an agency that purchases both conventional and federally insured first mortgages or deed of trust liens from members of the Federal Reserve System and the Federal Home Bank System.
Ginnie Mae (GNMA)
Government National Mortgage Association is an association working with the FHA that offers special assistance in obtaining mortgages and purchases mortgages in the secondary market.
Real estate insurance protecting against damage caused by fire, some natural causes, vandalism, etc., depending on the terms of the policy. It also includes coverage such as personal liability and theft at home and away from home.
A written document between the owner of the real estate and the tenant containing the conditions for the exclusive possession of real estate by the tenant for a definite period of time.
A monetary charge imposed on a property, usually arising from some debt or obligation.
An agreement between a broker and an owner, that the broker may sell or lease the real estate in exchange for the payment of a commission.
The highest price that a buyer will pay and the lowest price a seller will accept for a property as a result of an arms-length negotiation.
Metes and Bounds
A land description in which boundaries are described by courses, directions, distances and monuments.
While technically Texas in not a "mortgage" state, but is a deed of trust lien state, the term is often applied to loans secured by a deed of trust lien.
A plat may also be called a "plat map." A plat is a map dividing a parcel of land into lots in a subdivision. A plat book contains the plat maps for a given area.
Points of discount
The fee charged by a lending institution for making a loan at an interest rate below the prevailing rate. One point equals one percent of the loan.
Private Mortgage Insurance (PMI)
When a first lien lender is loaning more than 80% of the sales price, private mortgage insurance is usually required. PMI is paid for by monthly premiums by the borrower. PMI insures the lender against the borrowers default.
Process of paying off an existing loan with proceeds from another.
To relieve from debt or security or abandon a right, such as the release of a mortgage lien from a part or all of the land mortgaged.
Limitations on the use of property imposed or created by or other documents in the chain of title. A restriction, for example, may prohibit the placement of a trailer or the construction of a commercial structure on the property. Restrictions are normally placed on residential property by the developer.
Second Lien Loan
Financing real estate with a loan or loans that are subordinate to the first lien loan. It usually calls for a higher interest rate and a shorter repayment period. A second lien loan is most often used to avoid private mortgage insurance. The most common is an 80/10/10 - 80% first lien, 10% second lien, and 10% down payment.
An exact measurement of a parcel of land to ascertain corners, boundaries and divisions. A survey normally locates and depicts all permanent improvements located on the parcel.
Evidence, usually in the form of a deed, that a person has the right to ownership of the property in question.
A policy that protects the buyer against certain losses or damages resulting from a defective title.
A detailed investigation to ensure that a property is purchased from the legal owner and that there are no liens or special assessments against it.
A procedure that classifies real property for a number of different users (residential, commercial, industrial, etc.) in accordance with a land-use plan adopted by the city or other governing body in which the real property is situated. Ordinances are enforced by a governing body or locality.