Title Insurance Lecture 9

So You Want to Purchase the Balcones View Office Building

What do you want to know (or verify) before you give the Seller your money:
- You want to verify that the legal description of the Property is correct
- You want to verify that the Seller holds Fee Title to the Property
- You want to know if there are any restrictive covenants that will limit your ability to
use the Property
- You want to know if there are any easements encumbering the property and how
they might affect the ownership and operation of the Property
- You want to know if there are any other documents that affect Title to the Property
- You want to know if the Seller has any Deed of Trust liens or other liens encumbering
the Property that will need to be paid at closing
- You want to review a survey of the property which addresses all of these title
matters

BUT – you don’t have the resources, the time, or the expertise to answer those questions
for yourself

SOLUTION – have someone do the work for you

You could hire an attorney to prepare a “title opinion,” however, that can be expensive
The attorney will want to be paid for his work even if you don’t go forward with the
purchase. Also – if the attorney makes a mistake you have to sue him

The solution in Texas, and most other states, is to purchase a Title Insurance Policy

What the title company does for you:

- Accepts the executed contract
- Holds the earnest money in an escrow account
- Researches title to the Property and produces a title commitment
- Delivers the title commitment and copies of the relevant documents to the parties
for review
- Closes the transaction
o Has the appropriate documents executed and recorded?
o Acts as the disbursement agent for the money
- Issues the title insurance policy or policies

Title Insurance is INSURANCE. However, it differs from other forms of insurance

Other types of insurance are the pooling of risks to pay for losses arising out of unforeseen
future events
- Automobile liability insurance
- Property and Casualty Insurance
- Flood Insurance

Pooling of Risk
- Parties purchase insurance policies
 - Pay insurance premiums into a “pool”
- Policies insure against some future, unforeseen, adverse event
- Odds are small that you will suffer an insured loss
- If you do, however, it is going to be expensive

Primary purpose of title insurance is to eliminate risks and prevent losses caused by defects
in title arising out of events that have happened in the past

Title company searches the public records to detect defects in title

Title Company requires that the defects be cured or it will except them from coverage (i.e.,
it will not insure against them)

Balcones View Office Building- Exceptions From Coverage – Owner Policy

This policy does not insure against loss or damage (and the Company will not pay costs,
attorneys' fees or expenses) that arise by reason of the terms and conditions of leases and
easements, if any, shown in Schedule A, and the following matters:
a) Electric easement 5 feet in width along the northwest property line(s) of the
subdivision, as shown by the Plat(s) recorded in Volume 68, Page 19 of the Plat
Records of Travis County, Texas.

b) Public utility easement 10 feet in width along the Jollyville Road property line(s), as
shown by the Plat(s) recorded in Volume 83, Page 156B of the Plat Records of Travis
County, Texas.

Title Insurance – ALTA

American Land Title Association (ALTA) founded in 1907, is the national trade association
representing nearly 5,500 title insurance companies, title and settlement agents,
independent abstracters, title searchers, and real estate attorneys.

ALTA prescribes title insurance forms and title examination standards and closing
procedures that are used in many states- Texas is not an ALTA state

Most state title insurance systems are regulated by the State.

- Georgia: Georgia Office of Insurance and Safety Fire Commissioner
- Colorado: Colorado Division of Insurance – Department of Regulatory Agencies
- California: California Department of Insurance

Some states (Iowa is an example) do not have a state regulated title insurance system –
although Iowa does have a state sponsored title guarantee program. Also, you can still buy
title insurance on an Iowa property from an out of state company

Title Insurance – State Regulation

Texas Title Insurance - forms are promulgated by, rates are set by, and the business is
regulated by the Texas Department of Insurance

Types of Policies
Owner Policy of Title Insurance
 - Commercial Form
- Residential Form

Loan Policy of Title Insurance

- Lender Policy of Title Insurance
- Mortgagee Policy of Title Insurance

Title Commitment - A written commitment given by the title insurance company to issue a
title insurance policy or policies on a piece of property

The title commitment gives the prospective buyer and the prospective lender information
that they need to evaluate title to the property and to fix any problems that may exist

Schedule A
- Dollar Amount of the Policy
- Identification of the property to be insured (legal description)
- Identifies who appears to own the property
- How record title is currently vested (held)
- Identifies the proposed insured
o Buyer
o Lender

Note on the dollar amount of the policy:

- You are not allowed to over insure or under insure a property
- The policy must be in the amount of:
o Purchase price for an owner policy
o Loan amount for a loan policy

Schedule B
Exceptions from Coverage
- Standard printed exceptions
- Property specific exceptions
Examples:
- Restrictive covenants
- Easements
- Encroachments and other survey matters
- Setback lines and other plat matters
- Mineral reservations

Schedule C
- Items that will appear on Schedule B of the policy, if not taken care of
o Liens and other encumbrances are most commonly listed items
- Items that must be satisfied in order to close
- Requiring buyer and seller to provide copies of their organizational/authority
documents – to show that they have the authority to do the deal