Title Insurance in Texas

What is Title Insurance?

Title insurance plays a key role in our financial system and economy by providing peace of mind to both purchasers of real property and lenders who finance these purchases. Unlike other types of insurance that insure against loss from future events, title insurance covers the insured from losses due to past events. The title company defends attacks on the title and reimburses covered losses in an amount up to the policy limit.

Consider how freely we transfer real property in this country and allow property owners to access the equity in their property through refinance transactions in both the residential and commercial worlds. Title insurance policies provide peace of mind to the insured parties, which reduces the risks in such transactions, which in turn reduces the costs of lending money.

Like all other types of insurance in Texas, title insurance is regulated by the Texas Department of Insurance (TDI). There are two main types of title insurance policies in Texas, an owner’s policy and a lender’s policy. Nearly every institutional lender will require a lender policy, Texas form T-2, to provide coverage on a transaction where they are lending money. An owner’s policy, Texas form T-1 or T-1R, is generally not required, but a purchaser is likely to want coverage for many of the same reasons that a lender does, to protect their substantial financial investment.

What does Title Insurance cover?

The TDI promulgates all the forms that can be used for the issuance of title insurance. There are a variety of endorsements which can be added to certain policies. Here is a list from TDI of some of the more common covered title defects:

• Invalid documents due to forgery, fraud, undue influence, duress, incompetency, incapacity, or impersonation.

• Failure of any person or entity to have authorized a transfer or conveyance.

• A document affecting title that is not properly executed, signed, witnessed, notarized, or delivered.

• Undisclosed or unrecorded easements not otherwise apparent on your land.

• No right of access to and from the land.

• A document executed under a falsified, expired, or otherwise invalid power of attorney.

• A document not properly filed, recorded, or indexed in the public records.

• Ownership claims by undisclosed or missing heirs.

• Defect arising from an improper prior foreclosure.

• Undisclosed restrictive covenants affecting your property.

• Any statutory or constitutional contractor’s, mechanic’s, or materialman’s lien for labor or materials that began on or before the policy date.

• Lien for labor or materials furnished by a contractor without your consent.

• A previous owner failed to pay:

  • A mortgage or deed of trust

  • A judgment, tax, or special assessment

  • A charge by a homeowners or condominium association.

• Other liens or claims that may exist against your title that are not listed in the policy.

What it not covered?

Not every issue will be covered by a title insurance policy. The title company issuing the policy will add certain exceptions to Schedule B regarding known defects. For example, a recorded easement depicted on a survey that runs across the back of the property. In addition to the added exceptions to coverage, here is TDI’s list of common items that are NOT covered:

• Defects that are created after the policy is issued.

• Defects that you create, or of which you had knowledge.

• Problems that arise because of your failure to pay your mortgage, or to obey applicable laws or restrictive covenants that were disclosed to you.

• Certain taxes and assessments.

• Losses resulting from rights claimed by someone else occupying the land. The title company may need to inspect the property. There may be a charge for the inspection.

• Homestead, community property, or survivorship rights of a policyholder’s spouse. Texas homestead laws address the rights of a spouse or survivors of a property owner.

• Claims from other people who may have certain rights if your property is near a body of water or has a river or stream flowing through it.

• Condemned land, unless a condemnation notice appeared in the public record on the policy date or the condemnation occurred before the policy date.

• Violations of building and zoning ordinances and other laws and regulations related to land use, land improvements, land division, and environmental protection.

• Disclosed restrictive covenants limiting how you may use the property. Request copies of restrictions and have your attorney explain them.

How do I get title insurance?

In Texas, most real estate transactions take place under the guidance of a TDI licensed escrow officer for a title company. In most cases the title insurance company is listed in the contract between a buyer and a seller of real property. Once the contract is fully executed, it is delivered to the escrow officer who immediately begins guiding the parties towards closing. In many residential transactions the real estate agents choose the title insurance company that they are comfortable with using. In other transactions lenders or attorneys may also direct a transaction to the title insurance company they prefer. However, the parties to the transaction are paying for the policy and the associated fees, so they are entitled to have the final say in what title insurance company they wish to use.

Who provides title insurance?

All title insurance policies are underwritten by a TDI licensed underwriter. Many of these underwriters have direct offices where they will handle the transaction for you. There are also independent title insurance companies who have their own offices and escrow officers, and they write policies on behalf of one or more underwriters. A normal consumer may not notice much difference between a direct office and an agent. However, one of the key distinctions is that most direct offices are required by their parent company to write their policies on the single underwriter which owns them. An agent who has multiple underwriters has the ability to shop a file to other underwriters, if a certain aspect of the file does not meet one that underwriter’s guidelines. Essentially an independent company with multiple underwriters will have the ability to get more files closed, because they have more options.

Texas also allows for fee attorneys to sell title insurance and close transactions. A fee attorney is affiliated with either a direct or independent title insurance company and they close real estate transactions in their office. Some employ licensed escrow officers and have store fronts that very much resemble a traditional title insurance office. Please click here to learn more about our affiliated fee attorney office where we send transactions.

How much does it cost?

Just like the TDI promulgated forms, the policy and endorsement rates are also set by the Texas Department of Insurance. No provider of title insurance is allowed to discount rates or rebate premium back to a consumer. Here is an example of what the basic premium rates would be based upon some different sales prices:

Policy Value // Basic Premium (not including endorsements)

$250,000 // $1,623 $500,000 // $2,940 $1,000,000 // $5,575 $5,000,000 // $22,895 $25,000,000 // $83,995

While the policy, endorsement, and certain fees are all the same no matter which title company you close with, there are some fees that vary. These are the settlement charges and items that you purchase from the title insurance company. These fees may include a settlement or escrow fee, currier fee, tax certificate fee, copy fee, document fee, e-recording fee. These fees can vary from company to company.

Understanding my title commitment

Title commitments are provided to the parties to a transaction after the order is received by the title company. Depending on many factors including necessity and property type, the commitment may be delivered anywhere between zero and thirty days after the order is opened.

For a typical residential transaction the commitment will be delivered within a week, while a commercial transaction tends to average ten to fourteen days.

While a title company’s delivery time may vary significantly, the end product will be very similar as each company has to follow the TDI guidelines and promulgated forms for the title commitment. This commitment is key to the transaction as it will show important information for a buyer or borrower, seller, and lender. The commitment is divided into four sections:

1. Schedule A includes the insured parties, the policy amounts, who is vested in title, and the legal description of the land that is being insured. Vesting is important as whoever is shown in title will have to sign any documents to convey or refinance the property. Note that the title company determines vesting from an examination of the public record, and this is not determined through the tax appraisal district.

2. Schedule B lists all the exceptions to coverage that will be noted on the title policies. Paragraph 1 will list the restrictive covenants that affect the property. On most commitments these restrictions will be in bold font, and further down you will see more bold font that includes the particular exceptions for the subject property. Some of these common exceptions include easements, issues noted on the survey (building and property line issues), and any potential rights of tenants or other parties in possession of the property. There is also a standard mineral exception that is included which means that the title company is not going to insure the mineral estate. Some of these exceptions can be removed either by request or by working with the title company, while others cannot be removed.

3. Schedule C will show what needs to be completed before the title company can close the transaction and issue a policy. Liens that affect the property, issues with who is vested in title, judgments against the owner, and specific requirements to any party are all items that would appear on Schedule C. The escrow officer will work with the parties to help get the information necessary to clear these items.

4. Schedule D is probably the least reviewed and least important portion of the commitment. It lists the owners and directors of the title insurance company, the underwriter, and anyone receiving a portion of the collected policy funds.

It is very important for anyone who is buying, selling, or refinancing real property to understand and/or work with people who can help them understand this information. A good escrow officer is able to explain a commitment to the parties in an informative, but neutral manner. Our affiliate’s escrow team is well trained to guide clients to the smoothest closing. Further, a party may want to consider hiring competent counsel if they have questions or concerns about any of these items. This is particularly true on commercial transactions where competent counsel can save a party both time, money, and stress.

Deeds in Texas

The Texas Property Code Section 5.021, also referred to as the Statute of Conveyances, requires that “a conveyance of an estate of inheritance, a freehold, or an estate for more than one year, in land and tenements, must be in writing and must be subscribed and delivered by the conveyor or by the conveyor’s agent authorized in writing.”

For purposes of this article, Section 5.021 requires that a conveyance of real property must be in writing and must be signed and delivered by the seller. The instrument conveying the real property must contain the essential characteristics of a deed. As an instrument conveying an interest in real property, deeds are subject to the Statute of Frauds. A more thorough explanation of the Statute of Frauds can be found here.

For a deed to be a legally effective conveyance one must (1) be able to ascertain the grantor (seller) and grantee (buyer), (2) there must be language showing the grantor’s intention to convey title to the real property to the grantee (also referred to as “delivery”), (3) the real property must be sufficiently described, and (4) the deed must be signed and acknowledged by the grantor. See Green v. Canon, 33 S.W.3d 855, 858.

The first requirement is straightforward in that the parties must be named in the deed.

It most situations it is easy to determine the grantors intent, although it is important to note that language included in an instrument that contemplates future action can invalidate a conveyance.

Case law has established that delivery encompasses two elements: (1) the grantor must place the deed within the control of the grantee (2) with the intention that the deed become operative as a conveyance. See Hernandez v. Hernandez, 547 S.W.3d 898, 901. Ultimately the questions as to delivery is determined by the intent of the grantor, by looking at the facts and circumstances preceding, during, and following the execution of the deed.

The third requirement is the most troublesome. A conveyance of property that fails to describe a definite tract of land is void. The description does not have to list the metes and bounds description of the property, but it must provide the means by which the land being conveyed may be identified with reasonable certainty. The legal description must furnish enough information to locate the general area such as identifying it by tract survey and county but should contain information regarding the size, shape, and boundaries. See AIC Mgmt. v. Crews, 246 S.W.3d 640, 645.

TYPES OF DEEDS

Generally, there are three types of deeds in common use in Texas – a general warranty deed, a special warranty deed, and a deed without warranty. Admittedly there are other deeds in use, but discussion on those is reserved for future articles. It is important to note that the title of the deed is not the determinate factor in evaluating the warranties conveyed by the grantor – the language provided in the document prevails.

General Warranty Deed

The general warranty deed is the type most often used in Texas residential property sales. The obligation under a general warranty deed applies to any failure or defect in the grantee’s title, whatever the source. Meaning that a grantor is liable for a defect that occurred even before the grantor purchased the property.

A typical general warranty clause reads:

Grantor binds Grantor and Grantor's heirs and successors to warrant and forever defend all and singular the Property to Grantee and Grantee's heirs, successors, and assigns against every person whomsoever lawfully claiming or to claim the same or any part thereof, except as to the Reservations from Conveyance and the Exceptions to Conveyance and Warranty.

Special Warranty Deed

The special warranty deed is the used predominately in Texas commercial property sales. Unlike the general warranty deed, under a special warranty deed, the grantor warrants the title only against those claiming “by, through or under the grantor.” Meaning that the grantor is liable only for those losses or injuries arising in the grantor’s title during the grantor’s term of ownership of the property.

A typical special warranty clause reads:

Grantor binds Grantor and Grantor's heirs and successors to warrant and forever defend all and singular the Property to Grantee and Grantee's heirs, successors, and assigns against every person whomsoever lawfully claiming or to claim the same or any part thereof when the claim is by, through, or under Grantor but not otherwise, except as to the Reservations from Conveyance and the Exceptions to Conveyance and Warranty.

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Deed Without Warranty

A deed without warranty simply conveys the property without any warranties whatsoever. Despite the lack of any warranties, the deed without warranty conveys the grantor’s interest in the property described to the grantee. This should be used in place of a quit claim deed as quit claim deeds are fundamentally flawed in the State of Texas.

A typical conveyance clause in a deed without warranty reads:

Grantor, for the Consideration and subject to the Reservations from Conveyance and the Exceptions to Conveyance, grants, sells, and conveys to Grantee the Property, together with all and singular the rights and appurtenances thereto in any way belonging, to have and to hold it to Grantee and Grantee's heirs, successors, and assigns forever, without express or implied warranty. All warranties that might arise by common law as well as the warranties in section 5.023 of the Texas Property Code (or its successor) are excluded.

The preceding is intended as a general overview of Deeds in Texas and is by no means comprehensive. It is important to note that the terms of the transaction and status of the parties can oftentimes determine the type of deed and the need additional provisions or disclaimers to be included within the deed. The attorneys at Byers & Taylor, PLLC have the expertise to ensure that your deed is prepared properly and promptly.

Statute of Frauds

As most real estate investors are aware, certain agreements, including a contract for the sale of real estate,” are not enforceable unless the promise or agreement, or a memorandum of it is in writing and signed by the person to be charged with the promise or agreement or by someone legally authorized to sign on behalf of the person. See Tex. Bus. & Com. Code §26.01. The Statute applies to:

1. A promise by an executor or administrator to answer out of his own estate for any debt or damage due from his testator or intestate;

2. A promise by one person to answer for the debt, default, or miscarriage of another person;

3. An agreement made on consideration of marriage or on consideration of nonmarital conjugal cohabitation;

4. A contract for the sale of real estate;

5. A lease of real estate for a term longer than one year;

6. An agreement which is not to be performed within one year from the date of making the agreement;

7. A promise or agreement to pay a commission for the sale or purchase of:

   • An oil or gas mining lease;

   • An oil or gas royalty;

   • Minerals; or

   • A mineral interest; and

8. An agreement, promise, contract, or warranty of cure relating to medical care or results thereof made by a physician or health care provider as defined in section 74.001, Civil Practice and Remedies Code.

Certain loan agreements must also be in writing. The relevant section states that “a loan agreement in which the amount involved in the loan agreement exceeds $50,000 in value is not enforceable unless the agreement is in writing and signed by the party to be bound or by that party’s authorized representative.” See Tex. Bus. & Com. Code §26.02. ​ Although this article’s focus is on the Statute of Frauds referenced above, it is important to note that additional Statute of Frauds provisions can be found in Texas Business & Commerce Code Section 2.201 (applicable to the sale of goods) and in Texas Property Code Section 5.021 (requiring that a conveyance of an estate of inheritance, a freehold, or an estate for more than one year, in land and tenements, must be in writing and must be subscribed and delivered by the conveyor or by the conveyor’s agent authorized in writing). ​ As noted by the Texas Supreme Court in 2020, it has long been understood that to satisfy the Statute of Frauds, there must be a written memorandum which is complete within itself in every material detail, and which contains all the essential elements of the agreement, so that the contract can be ascertained from the writings without resorting to oral testimony. Copano Energy, LLC v. Bujnoch 593 S.W.3d 721, citing Cohen v. McCutchin, 565 S.W.2d 230 at 232. ​ Further, case law has established that multiple documents can comprise a written contract even if the parties executed the documents at different times and the documents do not expressly refer to each other. However, a writing that contemplates a contract to be made in the future does not satisfy the requirements of the Statute of Frauds, nor do writings that state potential contract terms. ​ The Statute of Frauds is generally used as a defense to claims for breach of contract or fraud arising from oral agreements on matters that fall within the Statute of Frauds. Although beyond the scope of this article, there are limited exceptions to the enforceability of the Statute of Frauds. ​ To safeguard against your transaction being barred by the Statute of Frauds it is imperative that you put all material terms in writing. The attorneys at Byers & Taylor, PLLC have the expertise to ensure that your contract, agreement or lease is prepared promptly, properly and oftentimes for a flat rate.