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What is title insurance and do you need it?

When buying a home or any real property in Texas, you may have an offer to buy title insurance. This is an expensive line item charge on the Closing Disclosure or Closing Statement charged by the title company. You should make sure that you understand what this is, how it works and why you may want to get it.You also need to get information so you can make an informed decision about buying it.

According to the Texas Department of Insurance, title insurance is protection against loss due to defects with the title. For example, if a company has a lien on the title that you did not know about, you could be out a lot of money trying to satisfy or hiring a lawyer to remove an improperly filed lien. Title insurance will help with the losses you incur. There are several methods for title insurance to be invoked and the first step is to file a claim, once you've submitted proof of claim the insurance company will determine whether it is a loss that is covered by your policy or not. If the claim is covered, they will pay for an attorney to represent your rights in court. If the matter cannot resolved via legal solutions, they may pay you damages for the diminished value of the property. It can also protect you against other claims of ownership or issues that happened before you were the owner that were never cleared up by the previous owner.

You are not required to get title insurance by the state or any law. However, your lender may require it. You typically have two options. You can get owner's coverage until you pay off your loan or for however long you own the property. The Lender may also purchase Lender's coverage which insures their position. There may also be the option of transferring the coverage if you transfer ownership of the property to heirs. It all depends on the insurer.

Unlike other insurance you may have, you only pay once for title insurance. So, you determine the terms of the coverage upfront and pay an upfront fee for the life of the policy. In additional to typical title or lien issues, there are a variety of endorsements which cover specific acts or periods that a normal policy would not cover. For example, you can purchase a T19 Policy to cover damage from mineral rights. If there is an oil and gas recorded interest which damages your property, a regular Owner's policy would not cover this claim. The cost is fixed as a percentage or absolute amount.

Ultimately, understanding what types of coverage are needed, coverage is wanted, and what the cost is in the event of a claim, but no coverage is important for any purchaser who is paying for this line item. This information is for educational use only. It is not legal advice.

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