Title insurance policies protect home buyers and their lenders against third-party ownership claims. Title insurance carriers can protect insured parties against unrecorded title defects, squatters' or adverse possession claims and marketable title challenges. Although the federal Real Estate Settlement and Procedures Act, or RESPA, governs the general conduct of real estate settlement agents and attorneys, state laws govern the specific requirements for title insurance companies issuing title insurance policies within their states. In Texas, the Department of Insurance regulates all insurance transactions within the state.
Title Insurance Overview
Title insurance companies indemnify home buyers against potential claims from other individuals challenging their ownership rights. Title insurance companies also issue lenders' insurance policies insuring lenders against third-party ownership challenges to ensure their investments are secure. In exchange for a monthly premium paid by home buyers, title insurance companies provide them with legal representation and a promise to defend their ownership rights. In all states, the vast majority of lenders require borrowers to purchase at least a lender's title insurance policy to protect them against third-party claims. In most states, including Texas, a home buyer has a right to purchase an owner's policy for losses exceeding the lender's loan amount.
The federal RESPA law covers prohibited transactions and fees that lenders and settlement agents charge consumers. According to RESPA, lenders must provide homebuyers with written good-faith estimates and disclosures notifying them of any affiliated business arrangements between them, real estate agents and settlement companies. Once lenders disclose any affiliated business arrangements, RESPA allows consumers to make informed decisions regarding which settlement companies should conduct their closings. RESPA also protects homeowners against unauthorized and illegal kickbacks or recommendation fees between parties.
Texas Buyers' Rights
Under Texas law, home buyers have legal rights to refuse owners' title insurance policies, and although lenders can require them to purchase lenders' policies, settlement agents and sellers cannot require them to purchase any other types of title insurance. At closing, a home buyer pays for a lender's policy and an optional owner's policy, and sellers are not required to contribute to either type of policy. However, a seller can voluntarily agree to pay for a purchaser's title insurance policy as an inducement or incentive to purchase.
Texas Title Insurance Costs
Texas title insurance carriers typically charge home buyers a one-time title insurance premium fee at closing, and buyers are not able to purchase owners' insurance after closing if they refuse it in writing during the closing transaction. As such, buyers and sellers can enter into negotiations as to which party should pay for the one-time insurance premium at closing. The Texas Department of Insurance establishes the premium title policy rates, and all real estate settlement companies must comply with the standardized fee structure. Texas law makes it illegal for title insurance companies to offer title insurance products to consumers without first obtaining a state title insurance license.
- Lawyers.com: Buying a House in Texas
- U.S. Department of Housing and Urban Development: More Information About RESPA
- U.S. Department of Housing and Urban Development: Frequently Asked Questions About RESPA
- U.S. Department of Housing and Urban Development: djustments to Costs Shared by Buyer and Seller
- Texas Department of Insurance: Insurance Code
- Texas Department of Insurance: Title Insurance