Uncovering the Mysteries behind Title Insurance in Residential Real Estate
When buying or selling a home, there are many complicated steps involved. And, numerous people to deal with during the process. As a real estate professional in Frisco and Plano, I’ve been helping homeowners and sellers for over 15 years. And, one of the common questions I hear from both is about title insurance. What is it, why do they need it, what does it do, how much does it cost, etc?
To help answer these questions, we’ve compiled a quick reference of common questions and answers about title insurance for home buyers and home sellers.
Title Insurance Q&A
Question #1: What Is Title Insurance?
A title insurance policy is a form of indemnity insurance for real estate. Title insurance protects the owners or lenders in the case of disputes, claims or losses previously unknown to the purchaser of the property. Examples of protection, to name just a few, include fraud, claims made by an unknown heir or spouse, or unpaid taxes.
Question #2: What Does a Title Company do?
A title company ensures the legitimacy of the title of a property before issuing the title insurance to it. Once a sales contract for a home purchase has been completed, the title company steps in to coordinate the interests of the transaction stakeholders. These stakeholders include buyers, sellers, mortgage lender, and real estate agents.
The title company conducts all necessary research on the property title. And, they coordinate all transaction details to ensure the property is transferred legally from the seller to the buyer.
The title company process typically starts with a title search into the history of the property. This includes previous purchase or sales transactions, mortgage and lien holders, judgments against the property, easements and restrictions, unpaid taxes, or other potential issues. The title company may also have a survey completed for the property which is often required by the lender.
Once the title research and survey work are completed, the title company issues an opinion stating any issues or moves to issue the title insurance policy.
It’s important to note that there are two kinds of title insurance. The lender’s title insurance is required and protects the mortgage company’s investment. The owner’s title insurance is optional but is highly recommended. The owner’s policy protects the property owner against any title claims, unpaid liens or fraud issues that may come to be known about in the future. Your professional real estate agent can provide more information about owner’s policies to ensure you are fully protected.
The title company is also responsible for reviewing all mortgage documents for the loan and drafting the HUD-1 settlement statement. The HUD-1 statement details all costs associated with the purchase and sale of the property.
Additionally, the title company appoints a signing agent or attorney to review all documentation at closing and collect a check for closing costs. To complete the process, the title company will ensure all documents, titles, and deeds are filed and legally recorded with the courthouse.
Question #3: How Much Does Title Insurance Cost?
In Texas, the price of the title insurance is regulated. This means that all companies will charge the same. The Texas Department of Insurance has compiled a list of the basic premium rates for title insurance. You can check it out here.
Question #4: Who Chooses (and Most Importantly, Pays) for the Title Insurance Policy?
Both the selling and buying parties can negotiate who pays for the title company, and who gets to choose it. As per the Real Estate Settlement and Procedures Act (RESPA), if the seller doesn’t want to pay for the title insurance, the buyer would have to pay. But, they also get to select the company of their choice without consulting with you.
On the other hand, if the seller is willing to pay for both the owner’s and lender’s policies in the title insurance, then the seller can choose a title company.
Your experienced real estate agent is vital in this role also. They can help guide you, as well as negotiate on your behalf for your best interests.
Question #5: How Does a Title Company Conclude that a Title is Valid?
The title company conducts a title search to determine if the title is valid. A title search is an in-depth assessment of the property records which:
- Confirms that the owner of the property is, indeed, legally the owner
- Ensures that there is no one else to claim partial or full ownership of the house
- Conducts a property survey to determine if the house sits on the legal boundaries
- Researches any outstanding payments, like taxes, liens, mortgages or judgments
- Checks for any issues that might affect ownership, such as easements, leases or restrictions
Question #6: How Do You Pick a Title Company?
Many real estate agents work with title companies and can direct you to a professional company with highly skilled employees.
When you are buying or selling through an experienced real estate agent, they know the market and the best title companies. So, they’ll be able to make suggestions based on your unique situation matched up with a title company’s capabilities.
Have more questions about title insurance or other real estate topics? Give us a shout—we’re always ready to help home buyers and sellers in the Frisco, Plano, Allen, Prosper and surrounding areas. Call us anytime at 469-634-0932.
About the Judi Wright Team
Judi Wright/The Judi Wright Team is a real estate group specializing in the suburbs of Frisco, Plano, and surrounding areas. Named the “Best Realtor in Dallas,” by D Magazine eleven times and a Five Star Realtor with Texas Monthly, Judi is also a Company-Wide Top performer with Ebby Halliday and the #1 Top Small Group for Ebby Halliday Frisco.