Title Insurance Scenarios

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Title Insurance Scenarios
Article Excerpt

Title insurance is part of nearly every real estate closing in Texas, but few people know what it actually does. Learn more about when it can be useful.

Title insurance is a necessary part of the homebuying process for most home sales in Texas. While nearly every homeowner in the state has title insurance, not many people understand exactly why they have it. Most homebuyers see it as just another closing cost. Besides that, the seller typically pays for a new title policy, so someone buying a home might not think about title insurance at all.

Title insurance plays a crucial role when it’s needed. Just like car insurance or health insurance, you’ll be glad you have title insurance should the need ever arise. When does that actually happen, though? Claims on title insurance policies are rare, especially when compared to auto, health, or homeowner’s insurance. Read on to learn about when title insurance is a homeowner’s best friend.

house with a moving sale sign in the front yard

What is a title?

The term “title” refers to the legal rights and obligations that come with owning a piece of real estate. When you buy a home, the seller signs a deed that names you as the new owner. Filing the deed with the county clerk officially transfers the title to the home into your name.

Owning real estate gives you the right to do things like keep trespassers out and make improvements to the land. You cannot do whatever you want with the property, though. You have to pay property taxes and abide by zoning laws, building codes, and other rules. If your home is part of a homeowner’s association, you have to follow their rules, too.

Other parties may also have a claim to the property. When you get a mortgage, for example, you sign a document called a deed of trust that gives the mortgage lender the right to foreclose if you stop making mortgage payments. Common claims on real property include the following:

  • Liens: A legal claim filed by someone to secure a debt. A mortgage deed of trust creates a lien. Other liens might involve a contractor who did not get paid, known as a mechanic’s lien, or unpaid property taxes.

  • Easements: The right to use part of someone else’s property for a specific purpose. A landowner, for example, might allow a neighboring landowner to use a path across their property to get to their own property. Utility companies have easements that allow them access to gas lines, fiber-optic cables, and other infrastructure on private property.

Title companies will research a property before closing to see if they can find any problems with the title. They will issue a document called a title commitment that identifies any issues with the title that they will not cover. For example, if a home is subject to a gas utility easement, a title company might state that they will not cover disputes related to that easement. Title insurance coverage is mainly for title issues and disputes that did not show up in their title search.

Which loan programs require title insurance?

Nearly all mortgage lenders will require a lender’s title insurance policy in order to make a loan. This type of policy covers the lender’s losses in the event that title problems arise. A separate policy, known as an owner’s policy, covers your losses.

While an owner’s policy is not usually required, it is a very good idea to have one. It is customary in Texas for the seller to pay for new title policies.

clients looking at home insurance documents

When is title insurance helpful?

Title insurance is useful when someone tries to claim ownership or some other legal interest in a property. Examples of possible title claims include the following:

Fraudulent Documents

Suppose Alan purchased a home from Brian and Christine, who have already moved out and relocated to a new town. Alan goes to the title company to sign the paperwork, while Brian and Christine send the paperwork in by mail. The title company files the deed with the county clerk, and Alan moves into his new home.

Months go by, and then Alan receives a notice from an attorney representing Brian. The attorney claims that Brian never signed the deed. Rather, Christine allegedly forged Brian’s signature on the deed and paid a notary public to sign off on it. This does not necessarily invalidate the sale of the home, but Alan will need to participate in a legal proceeding to sort everything out. The title insurance policy will pay for Alan’s legal fees.

Clerical Errors

Now suppose a similar scenario as the one described above, but instead of Christine allegedly defrauding Brian, the deed conveying the home to Alan has a clerical error. This could be as simple as having Brian and Christine sign a new deed correcting the mistake. If they refuse for whatever reason, or if someone who needs to sign a new deed is not available, it might be necessary to go to court to fix the deed. Title insurance can help here as well.

woman throwing documents and screaming at computer

Unpaid Property Taxes

Unbeknownst to Alan or the title company, a previous owner of the home failed to pay property taxes. Texas law gives county governments up to twenty years to enforce liens for unpaid property taxes. If the county tries to seize Alan’s home for something a previous owner failed to do, his title insurance should pay for his legal defense.

Unreleased Liens

Other parties could also have valid liens against the property without filing them in the public record. An individual or business with an invalid lien could try to enforce it against the property. Title insurance can help in these situations.

Unrecorded Easements

It is possible for someone to have an easement on another person’s property without having anything filed with the county clerk. This typically requires repeated use of part of the property for a long period of time without the owner’s objection. If someone claims to have an easement that they obtained under someone else’s ownership of the property, and Alan disagrees, he might need to turn to his title insurance for assistance.

Let us handle the details on your mortgage!

The Wood Group of Fairway is a mortgage lender you can trust. Between hundreds of buyer reviews, an experienced local staff, and being backed by Fairway Independent Mortgage Corporation’s national strength, you can rest assured that title insurance and other important protections won’t be missing from your home purchase.

You shouldn’t have to frantically chase down documents at the last minute. Let us do the busy work. Get started on your free pre-approval now!