What is Title Insurance?
Title insurance is a policy that protects real estate buyers and lenders against financial loss from defects in the property's title that weren't discovered during the title search. Unlike most insurance that protects against future events, title insurance protects against past events -- things that already happened but weren't found during the examination of public records. A forged deed in the chain of title from 20 years ago, an undisclosed heir with a claim to the property, or a recording error at the county level are all examples of hidden title defects that title insurance covers.
Title insurance is a one-time premium paid at closing, and the coverage lasts for as long as the insured party (or their heirs) owns the property. There are two types: the owner's policy, which protects the buyer, and the lender's policy, which protects the mortgage lender. In Texas, the seller customarily pays for the owner's policy, and the buyer pays for the lender's policy.
What title insurance covers
A standard owner's title insurance policy covers financial loss and legal defense costs arising from errors in public records, unknown liens or encumbrances, forged documents in the chain of title, undisclosed heirs who claim ownership, fraud or impersonation in prior conveyances, defective acknowledgments on recorded documents, and errors in surveys or legal descriptions.
Title insurance does not cover issues known at the time of purchase (listed as exceptions on the policy), government actions such as zoning changes or eminent domain, environmental contamination, defects created by the insured party after purchase, or matters that a current survey would reveal (unless an enhanced policy is purchased).
Owner's policy vs. lender's policy
| Feature | Owner's Policy | Lender's Policy |
|---|---|---|
| Who it protects | The buyer/owner | The mortgage lender |
| Coverage amount | Purchase price | Loan amount |
| Duration | As long as owner (or heirs) has interest | Until loan is paid off or refinanced |
| Required? | Optional but strongly recommended | Required by nearly all lenders |
| Who pays (TX) | Seller | Buyer |
Investors who buy properties with cash sometimes skip the owner's title insurance to save money. This is a risky decision. Without title insurance, you bear the full financial risk of any title defect that surfaces after closing. A single undiscovered lien or ownership claim could cost far more than the one-time premium. Most experienced investors always purchase title insurance, even on cash transactions.
Title insurance costs in Texas
Texas is one of the few states where title insurance rates are set by the Texas Department of Insurance. All title companies charge the same basic premium rate, which is based on the purchase price. For a $200,000 property, the owner's policy premium is approximately $1,350. For a $300,000 property, it's approximately $1,755. The lender's policy is significantly less expensive -- typically $200-$400 when purchased simultaneously with the owner's policy.
Because rates are standardized in Texas, you can't shop for a cheaper title insurance premium. However, you can shop for better service, faster turnaround, and experience with investor transactions. A title company that regularly handles wholesale deals, assignments, and double closes is far more valuable than one that primarily handles retail transactions, even though the premium is identical.
Title insurance and closing costs
Title insurance premiums are one of the larger closing costs in a real estate transaction. In wholesale deals, understanding who pays which title costs affects your bottom line. The standard Texas contract assigns the owner's policy to the seller and the lender's policy (if applicable) to the buyer. However, these allocations are negotiable. In some wholesale transactions, particularly with motivated sellers, the buyer may agree to pay all title costs to make the deal work.