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 claim, initiating all necessary legal proceedings to clear the title to the property, indemnify the insured, re-insure at current value without making exception to the covered title risk, indemnify another title insurer that re-insures 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.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 claim, initiating all necessary legal proceedings to clear the title to the property, indemnify the insured, re-insure at current value without making exception to the covered title risk, indemnify another title insurer that re-insures 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 the 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.
Two Basic Types of Title Insurance
There are two major types of title insurance policies. The Owner Policy of Title Insurance insures the owner against certain listed title risks, and the Loan Policy of Title Insurance insures the lender that the mortgage is a valid lien against the property. The coverage amount for the Owner Title Policy is the sales price amount or the value of the land and improvements. The coverage amount for the Loan Policy of Title Insurance is the loan amount.
Why You Need It?
To protect possibly the most important investment you'll ever make, the investment in your home or business.
A lender goes to great lengths to minimize the risk of lending you the money you need to buy real estate. First, your credit is checked as an indication of your ability to pay back your loan.
Then, your lender goes a step further. He or she makes sure that the quality of the title to the property you are about to buy and which you will pledge as security for the loan is satisfactory. The lender does this by obtaining a loan title policy.
The loan policy protects the lender against loss due to unknown title defects. It also protects the lender's interest from certain matters, which may exist but not be known at the time of the sale.
But this policy only protects the lender's interest. It does not protect you. That's why you need an owner's policy, which can be issued at the same time as the loan policy.
An owner title policy protects you, the purchaser or owner, against a loss that may arise by reason of a defect in your ownership or an interest you have in the real property.
Potential Defects
Your Title Insurance Policy Protects You Against Such Potential Defects As:
- Forged deeds, mortgages, satisfactions or releases.
- Deed by person who is insane or mentally incompetent.
- Deed by minor (may be disavowed).
- Deed from corporation, unauthorized under corporate bylaws or given under falsified corporate resolution.
- Deed from partnership, unauthorized under partnership agreement.
- Deed from purported trustee, unauthorized under trust agreement.
- Deed to or from a "corporation" before incorporation, or after loss of corporate charter.
- Deed from a legal nonentity (styled, for example, as a church, charity or club).
- Deed by a person in a foreign country, vulnerable to challenge as incompetent, unauthorized or defective under foreign laws.
- Claims resulting from use of an"alias" or fictitious namestyle by a predecessor in title.
- Deed challenged as being given under fraud, undue influence or duress.
- Deed following nonjudicial foreclosure, where required procedure was not followed.
- Deed affecting land in judicial proceedings (bankruptcy, receivership, probate, conservatorship, dissolution of marriage) unauthorized by court.
- Deed following judicial proceedings, subject to appeal or further court order.
- Deed following judicial proceedings, where all necessary parties were not joined.
- Lack of jurisdiction over persons or property in judicial proceedings.
- Deed signed by mistake (grantor did not know what was signed).
- Deed executed under falsified power of attorney.
- Deed executed under expired power of attorney (death, disability or insanity of principal).
- Deed apparently valid, but actually delivered after death of grantor or grantee, or without consent of grantor.
- Deed affecting property purported to be separate property of grantor, which is in fact community or jointly owned property.
- Undisclosed divorce of one who conveys as sole heir of a deceased former spouse.
- Deed affecting property of deceased person, not joining all heirs.
- Deed following administration of estate of missing person, who later reappears.
- Conveyance by heir or survivor of a joint estate, who murdered the decedent.
- Conveyances and proceedings affecting rights of service member protected by the Soldiers and Sailors Civil Relief Act.
- Conveyance void as in violation of public policy (payment of gambling debt, payment for contract to commit crime, or conveyance made in restraint of trade).
- Deed to land including "wetlands" subject to public trust (vesting title in government to protect public interest in navigation, commerce, fishing and recreation).
- Deed from government entity, vulnerable to challenge as unauthorized or unlawful.
- Ineffective release of prior satisfied mortgage due to acquisition of note by bona fide purchaser (without notice of satisfaction).
- Ineffective release of prior satisfied mortgage due to bankruptcy of creditor prior to recording of release (avoiding powers in bankruptcy).
- Ineffective release of prior mortgage or lien, as fraudulently obtained by predecessor in title.
- Disputed release of prior mortgage or lien, as given under mistake or misunderstanding.
- Ineffective subordination agreement, causing junior interest to be reinstated to priority.
- Deed recorded, but not properly indexed so as to be locatable in the land records.
- Undisclosed but recorded federal or state tax lien.
- Undisclosed but recorded judgment or spousal/child support lien.
- Undisclosed but recorded prior mortgage.
- Undisclosed but recorded notice of pending lawsuit affecting land.
- Undisclosed but recorded environmental lien.
- Undisclosed but recorded option, or right of first refusal, to purchase property.
- Undisclosed but recorded covenants or restrictions, with (or without) rights of reverter.
- Undisclosed but recorded easements (for access, utilities, drainage, airspace, views) benefiting neighboring land.
- Undisclosed but recorded boundary, party wall or setback agreements.
- Errors in tax records (mailing tax bill to wrong party resulting in tax sale, or crediting payment to wrong property).
- Erroneous release of tax or assessment liens, which are later reinstated to the tax rolls.
- Erroneous reports furnished by tax officials (not binding local government).
- Special assessments, which become liens upon passage of a law or ordinance, but before recorded notice or commencement of improvements for which assessment is made.
- Adverse claim of vendor's lien.
- Adverse claim of equitable lien.
- Ambiguous covenants or restrictions in ancient documents.
- Misinterpretation of wills, deeds and other instruments.
- Discovery of Will of supposed intestate individual, after probate.
- Discovery of later will after probate of first will.
- Erroneous or inadequate legal descriptions.
- Deed to land without a right of access to a public street or road.
- Deed to land with legal access subject to undisclosed but recorded conditions or restrictions.
- Right of access wiped out by foreclosure on neighboring land.
- Patent defects in recorded instruments (for example, failure to attach notarial acknowledgement or a legal description).
- Defective acknowledgement due to lack of authority of notary (acknowledgement taken before commission or after expiration of commission).
- Forged notarization or witness acknowledgment.
- Deed not properly recorded (wrong county, missing pages or other contents, or without required payment).
- Deed from grantor who is claimed to have acquired title through fraud upon creditors of a prior owner.