While most homeowners have title insurance, few understand what it does or what it covers. In Texas, most transactions are closed at a title company, and the title company issues a title policy which protects the buyers’ ownership for as long as they or their heirs own the home.
In Texas, it is customary for the seller to pay a title policy. However, in any contact, commissions, fees, and terms are all negotiable. If a buyer is financing and obtaining a mortgage, the lender will require a title policy to be purchased as a condition of funding the loan. Regardless, we highly recommend all buyers have a title policy included in their transaction.
Once a contract is executed and receipted at a title company, a title professional will search the public records to look for any problems with the home’s title. The search reviews land records going back many years. At closing, an Owner’s Title policy is issued and protects the buyer should a covered title problem arise with the title that was not found during the title search.
Many risks can arise when purchasing a home and transferring the title from seller to buyer. Possible problems can include errors or omissions in deeds, mistakes in examining records, failure to discover a recorded lien, forgery, undisclosed heirs, or conflicting wills. About one out of every four title searches discovers a title problem, but most are resolved before closing.
Choosing not to purchase a title policy can result in severe financial loss. We had a cash buyer almost lose their property due to a title issue. Last year, one of our clients purchased a $250,000 home for cash. A title policy was issued by the title company. The title company missed a recorded lien in the title search but did issue an Owner’s Title policy. The home went into foreclosure six months later, and an investor purchased the property at the county steps and satisfied the payment of the lien missed by title search.
Because a title policy was issued to our client when he purchased the home, he contacted the title company and filed a claim. The insurance company was able to settle with the buyer who purchased the property under foreclosure. Fortunately, the buyer was an investor, and he made a quick profit by settling with the title insurance company for the amount of the insurance coverage.
Since the buyer purchased home in foreclosure and was the legal owner, he could have refused to settle with the title insurance company and taken legal possession of the home. Had this happened, our client would have lost the home but would have been compensated by the title company for the amount of coverage on the policy. Our client also spent thousands of dollars in improvements for the six months he owned home. The improvement costs also would have been lost.
So whether you are an investor or purchasing a property as your primary residence, it is critical to purchase a title policy. Our client would have lost over $250,000 plus improvements made to the home had a title policy not been purchased. The cost of the title policy is usually less than 1% of the purchase price.
If you have any questions, please call us at 512-257-9836. Our office provides sales, leasing, property management, and mortgage services.