Title Insurance

Title insurance is an indemnity contract under which a title insurer agrees, in exchange for a one-time premium paid at closing, to defend the insured against title defects existing as of the policy date and to pay losses up to the policy amount. Unlike most insurance products that protect against future events, title insurance protects against past events that may surface later, undisclosed liens, defective deeds in the chain of title, forgeries, errors in public records, and similar issues predating the policy. Texas title insurance is among the most heavily regulated in the United States; the Texas Department of Insurance promulgates both premium rates and policy forms.

Owner's policy vs. loan policy

The two principal Texas title insurance products are: (1) T-1 Owner's Policy, protects the buyer (or other owner) against title defects affecting the insured estate, with coverage equal to the purchase price; remains in force as long as the insured (or successor heirs) holds title; covers defense costs in addition to loss amounts. (2) T-2 Loan Policy, protects the lender against title defects affecting the priority of the insured mortgage; coverage equal to the loan balance; decreases as the loan is paid down; assignable with the loan. Most commercial closings include both, the owner's policy benefits the buyer; the loan policy benefits the lender.

The commitment process

Title insurance issues only after a commitment process: (1) the title company performs a title search reviewing the chain of title, encumbrances, easements, restrictions, judgments, taxes, and other matters of record; (2) the title company issues a title commitment identifying the proposed insured, the property, the policy amount, and the proposed exceptions; (3) the buyer reviews the commitment and objects to specific exceptions; (4) the parties resolve objections (cure, waive, or terminate); (5) closing occurs and the policy issues. The commitment review and objection period are critical, exceptions in the commitment become exceptions in the policy and are not insured.

Standard policy structure

Texas title insurance policies have four schedules: Schedule A (proposed insured, property, amount, effective date); Schedule B (exceptions to coverage, what the policy does NOT insure); Schedule C (requirements that must be met before issuance); Schedule D (disclosures, including escrow agent identity and premium splits among insurers). Standard exceptions (the "general exceptions") include matters arising after policy date, claims of parties in possession, easements not disclosed by the public records, and discrepancies that an accurate survey would reveal. Each general exception can typically be deleted or modified through endorsements at additional premium.

Coverage and exclusions

The standard owner's policy insures against (1) defects in title; (2) liens or encumbrances on title; (3) lack of right of access; and (4) unmarketability of title. Standard exclusions (matters never covered) include: (1) restrictions, regulations, and ordinances by governmental authority; (2) eminent domain unless notice was recorded; (3) defects, liens, or encumbrances created or known by the insured but not disclosed to the insurer; (4) results of failure of consideration; (5) governmental forfeiture.

Endorsements

Texas title insurers offer numerous endorsements that expand or modify standard coverage, including: T-19 (restrictions, encroachments, minerals); T-19.1 (residential restrictions); environmental endorsement; access endorsement; mineral endorsement; condemnation endorsement. Each endorsement carries an additional premium. Sophisticated commercial buyers typically negotiate a slate of endorsements addressing specific transaction risks.