Why is Title Insurance Necessary?

Many states require buyers of real property to purchase title insurance. Texas, however, is not one of them, though your mortgage lender might require you to purchase a policy to protect their interests. 

Because title insurance is not required for real estate transactions in Texas, many buyers take the short-term savings, believing that having title insurance (or at the very least obtaining a title report) is a luxury instead of a necessity. This could be a big mistake. There can sometimes be a cloud on title, meaning that the person you supposedly bought the real property from did not actually have the right to transfer the title to you. After you’ve occupied the property for weeks, months, or even years, what do you do then? 

Before you buy the property, the title company (or your real estate attorney) should perform a title search to find out any title issues before the sale goes through. Common issues that title searches occasionally turn up include liens against a property and breaks in chain of title. The purpose of a title search is to surface these issues before the buyer sinks thousands of dollars into a property. 

However, a title search does not always turn up every title issue before the sale goes through and does not insure your title is free and clear of defects. Fortunately, if you purchased title insurance, you are very likely to be personally protected from any financial losses arising from title disputes. 

A Cautionary Tale

To illustrate the perils of not purchasing title insurance, let’s consider a potential homebuyer who has his eyes on a piece of property on Galveston Island. Two siblings recently inherited the house from their mother, and they are motivated to sell it. The homebuyer gets in contact with the two siblings about purchasing the property. 

The homebuyer chooses not to purchase title insurance, and all is well for a few months. Soon, though, the buyer gets a letter from someone purporting to be a third, estranged sibling who says he should have been consulted on the sale and wouldn’t have agreed on the sale. Without title insurance, the homebuyer is on the hook for all manner of court and legal expenses needed to settle the title dispute. 

That is a somewhat extreme example, but less dramatic disputes play out every day across the state. Without title insurance, real estate buyers’ personal finances are at risk.   It is advisable to speak with an experienced real estate attorney before you decide to purchase real estate if you have questions concerning title insurance and the protections it can provide. 

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