WHAT IS TITLE INSURANCE? - AND WHY IT IS IMPORTANT TO ME?
Title insurance is insurance, but it is not like other types of insurance. First of all, title insurance is retrospective. It looks backward (at the past) to determine insurability. Almost all other forms of insurance are prospective - they insure against things that may happen in the future, such as a fire or a flood.
But, title insurance is much more than just a novel type of insurance coverage. It is what helps to protect the American dream. The essence of the American dream is opportunity - opportunity to achieve a good life and live it in freedom. A major feature of achieving the American dream is home ownership. If you own your own home, it's yours, and you are free to live in it forever should you so desire. But, without title insurance, no homeowner would ever be free from the fear of a knock on the door of their home, and answering it to find a stranger on the doorstep, who then tells the homeowner that the homeowner must leave the home now - because the home is actually that stranger's property. That scene could happen, if someone does not carefully research and examine the home's ownership records, in other words, its title.
Title insurers research and examine the title to a piece of real estate, both homes and commercial property, before closing a transaction. If the title insurance company's examination of the title reveals any outstanding claims of ownership or unreleased liens, then those things are shown on the company's title commitment, which is like a little report. That title commitment also shows what restrictions, easements, and mineral reservations apply to the property. But, the title insurer will not close the transaction - and insure the title - unless and until all outstanding claims of ownership and unreleased liens are eliminated, either before or at the closing. The title insurer wants to make sure that they never have to pay a claim because one of its insureds got an unexpected knock on their door.
In Texas, title companies not only research, examine, and insure the title to all types of property, but they also close the sales transaction. Today, closing even a usual real estate transaction, such as an ordinary home purchase, is a very complex task. And, the title company will do all of this for a one-time only fee. Title insurance, unlike car insurance and other type of insurance, is generally paid for only once, which is when the property is purchased. Not only that, but in Texas the state government sets the rates that Texas title insurers must charge everyone. Therefore, every Texas title company essentially charges the same price for the same amount of title insurance coverage. The rates are tied to the value of the property that is being insured.
So, when you participate in the American dream by buying a home, you should obtain a title insurance policy, regardless of which party to the home purchase transaction pays the premium for the title insurance policy. If your purchase of a home also involves obtaining a loan to finance the purchase, then your lender will require title insurance to protect the ownership of the collateral for its loan - your home.
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* The rate calculations do not establish a title commitment or an offer of service and only provided for a rough estimate.