Who Pays For Title Insurance? 6 Things You Need to Know About Title Insurance in Texas (2024)

Navigating the world of real estate transactions in Texas can be a complex and daunting task, especially when it comes to understanding the ins and outs of title insurance. With unique state regulations and several policy options available, it's crucial for you to grasp how title insurance works in Texas to make informed decisions throughout your real estate journey.

In this guide, we'll look at the two types of title insurance policies—owner's and lender's—and who pays for what. We'll also walk you through the basics of a title search and what happens if you have to make a claim.

Armed with this knowledge, you'll be better equipped to confidently navigate the Texas homebuying process and protect your valuable investments.

For informational purposes only. Always consult a legal professional before proceeding with a real estate transaction if you have any questions.

What is Title Insurance?

Title insurance is a form of indemnity insurance that protects the holder from financial loss sustained from defects in a title to a property. It's designed to defend against potential title disputes that could result in a financial loss. The benefits of obtaining title insurance include protection against undisclosed property tax liens, forgeries, and other defects that might not be discovered even with a thorough title search.

It's important to note that while there are standard coverages, each policy may have specific exceptions unique to the property in question, so it's essential to review your policy carefully. Exclusions and exceptions can include, but aren't limited to, mineral rights, encroachments, easem*nts, or zoning restrictions.

In Texas,the title insurance premium includes charges for additional services provided by the title company, such as the title search, the title examination, and closing the real estate transaction.

Types of Title Insurance Policies

You'll find two types of title insurance in Texas: owner's policies and lender's policies. Both are designed to protect against potential title defects and financial losses. The main difference between the owner's vs. lender's policies is that, as one might expect, an owner's policy protects the homebuyer, while a lender's policy protects the lender.

If you're getting a mortgage, your lender will require you to purchase lender's title insurance, but buying owner's title insurance is optional.

There's good news for if you're buying both owner's and lender's title insurance: if you buy them both at the same time, you get a discounted price of $100 on the lender's insurance. (If you don't get an owner's policy, you pay full price for lender's insurance.)

How Does Title Insurance Work in Texas?

Title insurance is a one-time charge paid during closing as part of closing costs. While title insurance is not a requirement to buy a home in Texas, most homebuyers purchase a policy.

Title insurance rates in Texas are set and regulated by the Texas Department of Insurance, which means that all title companies will offer the same rates. The rates are based on the property's sale value.

You can choose any title company you want, though your real estate agent and mortgage lender can point you in the direction of reputable choices. The Real Estate Settlement Procedures Act (RESPA) makes it illegal for a seller to require the use of a specific title company for the sale to go through.

The claims process for title insurance in Texas is straightforward but can vary depending on the nature of the issue at hand. If you discover a problem with your property's title after purchasing it, you'll need to notify your insurer, the title company, immediately and provide any relevant documentation. The title company will then investigate the claim and determine whether it falls within the scope of your coverage.

If approved, they'll either compensate you for any financial loss incurred or take legal action on your behalf to resolve the issue. Having a clear understanding of what is covered under your policy can help avoid unexpected surprises down the road in case an issue arises with your property's title.

Title Search Process

Title searches involve an extensive examination of public records related to the property you want to purchase. This analysis will reveal any possible liens, boundary disputes, or other issues that could impact your ownership rights. By doing so, the title company can identify any potential problems early on and address them before closing the deal.

The title search process typically includes examining county land records, court judgments, tax records, and other relevant documents to verify the current owner's right to sell and ensure there are no outstanding claims against the property. If there are no issues, it's a "clean" or "clear" title, and there's no question about the owner's legal right to the property.

Additionally, the title search can uncover easem*nts or restrictions that may affect your planned use of the property. Once any identified title defects have been resolved or accounted for in negotiations with the seller, you'll be better positioned to protect yourself from financial losses due to unforeseen complications regarding your new home's title history.

What Does Title Insurance Cost in Texas?

Understanding the costs and coverage of title insurance is crucial when purchasing a property in Texas, as it can save you from potential financial headaches down the road.

The cost of title insurance in Texas is based on the home's sale price and typically ranges from 0.5% to 1% of the purchase price. These rates are set by the Texas Department of Insurance and don't change between title companies. Lender's policy premiums are often lower than owner's policy premiums because they cover a smaller amount (the loan amount instead of the full property value).

Unlike traditional home insurance or auto insurance policies, which require annual renewals and premium payments, title insurance is a one-time fee paid at closing that covers you for as long as you own the property (or have an interest in it through a mortgage).

Some buyers may choose to purchase additional endorsem*nts or riders for more specific types of protection not included in standard policies, such as environmental contamination or restrictive covenants violations. Homeowners may choose to add more coverage if their home increases in value.

Home Buyer & Seller Obligations

Both sellers and buyers have specific duties when it comes to obtaining title insurance. A seller's primary obligation is to provide a clear title for the property, which customarily includes paying for an owner's title policy. On the other hand, buyers are typically responsible for buying lender's title insurance if required by their mortgage provider.

However, these customary obligations aren't set in stone, and everything is negotiable. For example, in a seller's market, buyers will typically make their offers more competitive by paying for the owner's title insurance themselves.

In case any issues with the property's title arise after closing, both parties should be aware of their respective roles during the claim process. If you're a buyer who purchased an owner's policy or a lender with a lender's policy, you can file a claim with your insurer to cover any losses incurred due to undisclosed liens or forgery on the property's chain of ownership. Your insurer will then investigate and handle any necessary legal proceedings on your behalf. Meanwhile, sellers may need to cooperate with insurers during this process if they are involved in resolving disputes tied to their previous ownership of the property.

Frequently Asked Questions About Title Insurance

Who pays for title insurance in Texas?

In Texas, the buyer and seller often negotiate who will pay for the owner's title insurance policy in the sales contract. While it's customary in many Texas counties for the seller to pay for the owner's title policy, this isn't a legal requirement, and the parties can agree otherwise. In hot real estate markets, the buyer typically pays for both the owner's and lender's title insurance.

Why is title insurance necessary?

Title insurance protects both real estate owners and lenders against loss or damage occurring from liens, encumbrances, or defects in the title or actual ownership of a property. Unlike traditional insurance, which protects against future events, title insurance protects against claims for past occurrences.

Is title insurance required in Texas?

Title insurance is not required in Texas by law. However, almost every mortgage lender in Texas will require the borrower to purchase a lender's title insurance policy to protect the lender's financial interest. Owner's title insurance, which protects the buyer's investment, is optional.

What happens if a title defect is discovered after purchasing a property, despite having title insurance?

If a title defect arises after purchasing, your title insurance provides solutions like dispute resolution and coverage for legal ramifications. This protection ensures you're not financially burdened by unforeseen issues in Texas.

Can an existing owner's title insurance policy be transferred to a new buyer during a property sale?

An existing owner's title insurance policy cannot be transferred to a new buyer. Spouses or dependents can be added to a policy, and the policy can be inherited, but it cannot be gifted and doesn't automatically transfer when the home is sold to a family member.

How long does the coverage of a title insurance policy last, and can it be renewed or extended?

Don't worry about coverage duration; owner's title insurance policies in Texas last for as long as you own the property. If your home increases in value, you can choose to add more coverage, but renewing or extending is unnecessary.

Are there any specific situations or property types where title insurance is not necessary or recommended in Texas?

Every situation is different. Consult a real estate expert to determine if your specific situation warrants skipping coverage.

How does the claims process work in case of a title defect or issue arising after purchasing title insurance?

In Texas, if a title defect arises, contact your insurer for assistance in resolving title disputes, lien resolution, or boundary conflicts. They'll ensure compliance with state regulations.

For informational purposes only. Always consult a legal professional before proceeding with a real estate transaction if you have any questions.

Ready to Close the Deal on Your Home in Texas?

Understanding the ins and outs of title insurance in Texas will help you on your way to a successful real estate transaction. From picking a title company to negotiating closing costs, knowing what to do will bring you one step closer to getting into your dream home.