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Title Insurance: What Is It and Why Do I Need It

Title insurance is made available in real estate transactions to protect owners and lenders from loss stemming from defects in real estate title. The title insurance policy agrees to protect the insured from actual loss due to a superior interest in the property that was unknown at the time of closing.

Although closing at a title company is the typical way to do business in Texas, closings sometimes occur without title insurance. Yet, there are many reasons why obtaining title insurance is a good idea:

1- The title company has the resources to research title and make sure the parties of the transaction are aware of any title issues.

2- The title company ensures proper documents are signed and recorded and makes sure correct funds are collected and disbursed.

3- The title policy provides recourse and recovery if either buyer or lender sustains a monetary loss as a result of a title defect.

Once a contract is delivered to a title company, the title company will do title research

and issue a title commitment. The title commitment consists of Schedules A through D along with notices. Schedules A through D review the status of title, list title issues and defects that need to be addressed or cured before closing, and state any other preconditions to issuance of a title policy.

1- Schedule A indicates the type of transaction, name of prospective new owner, the proposed amount of the policy, current owner of record, and the legal description of the property.

2- Schedule B includes exclusions and exceptions to coverage.

3- Schedule C lists potential problems such as liens and judgments and the title company will usually require these issues to be resolved prior to closing.

4- Schedule D discloses price of the policy and the parties who will receive any of the premium.

Although title insurance is not required, it is always recommended. By purchasing title insurance, the title company must investigate and cure any title defect or lien that appears after closing. If the title company cannot clear the title, the title company may be liable for monetary damages, but it is limited to the owner’s actual money loss or the amount of the policy, whichever is less.

If you need any assistance reviewing a title commitment or clearing any title issues that may show on a title commitment, we can help!

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