For many of us, buying a home is the biggest single investment we’ll ever make.
While Realtors are knowledgeable about all aspects of the home buying process – negotiations, lending, pricing, appraisal, home inspection, etc. – the intricacies & complexities of title insurance sometimes fall outside of their area of expertise.
Owning a home may seem very straightforward, but the underlying legal rights to the property can be very complicated. Title is the right to property ownership. It includes the right to possess, mortgage, lease and sell the property. Title insurance is your policy of protection against loss if any of the issues covered by your policy – even a hidden hazard – results in a claim against your ownership.
Title insurance, unlike property & casualty insurance, operate under the theory of risk elimination. Title companies spend a high percentage of their operating income each year on collecting, storing, maintaining & analyzing information in official records that affects title to real property. Those title “plants” include records that may date back more than 100 years. Technical experts within the title company are trained to identify the rights others may have in a property, such as recorded liens, legal actions, disputed interests, rights of way or other encumbrances of record. Before closing a transaction, the title company “clears” the required issues. In fact, according the American Land Title Association, more than one-third of all title searches reveal an issue that title professionals correct before a Buyer goes to closing.
Most other types of insurance anticipate losses and collect premiums based on a certain number of claims that will be made over time. Instead, title insurance premiums are paid to identify and eliminate potential risks and claims before they happen. In addition, title insurance involves a one-time premium, paid when the real estate transaction is closed, compared to property, casualty and medical insurance which require regular renewal premiums.
The goal of title companies is to conduct such a thorough search & evaluation of public records that no claims will ever arise. Of course, we live in an imperfect world where human error and changing legal interpretations make 100 percent risk elimination impossible. So when claims arise, professional claims personnel are assigned to handle them according to the terms of the title insurance policy.
Title insurance rates are set by the Texas Department of Insurance. In Texas most of the large counties have been converted to computer-based title plant systems that speed the process of delivering the title search to the customer. This investment in skilled personnel and advanced data processing represent a major part of the title insurance premium dollar. Proper title plant maintenance, research, evaluation and legal interpretations are the foundations upon which a title policy rests. That is where most of a dollar goes when title insurance is purchased at closing. And that is the source of protection and peace of mind that tile insurance provides a homeowner.