3 Evidence of Title A purchaser wants to be fully advised on
the status of the title, and that there is no cloud on title which
would adversely affect his interest. The real estate licensee
cannot give advice as to the quality of the title. It is the real
estate agents obligation to inform the purchaser, in writing, that
he should have the abstract examined prior to closing or that he
should obtain title insurance. There are two things the purchaser
should be concerned about: (1) the solvency of the defendant should
title fail; and (2) the expertise of those investigating the status
of title. TREC One to Four Family Residential Contract Paragraph
6:
Slide 4
4 TREC Form OP-C
Slide 5
5 Marketable Title vs. Merchantable Title Title that is free
from reasonable doubt as to matters of law and fact, such title is
such that a prudent man, advised of the facts and the legal
signicance, would willingly accept, although a title need not be
absolutely free from every technical and possible suspicion in
order to be marketable. Title that is free of defects of
record.
Slide 6
6 Methods of Title Assurance Torrens system Personal warranty
of the grantor Lawyers title opinion Abstractors certicate Title
insurance
Slide 7
7 Torrens System of Title Registration Not utilized in Texas!
The title to the real estate is reected by a registration
certicate. The registration certicate includes a legal description.
All adverse claims against the real estate would also be reected.
When a lien is placed on the property, one turns in his title
registration certicate and receives a new one reecting the new
lien. The old registration certicate is then destroyed.
Slide 8
8 Personal Warranty of the Grantor The grantor usually gives
warranties of the title in the deed. If there is a defect in the
title, the purchaser has the right to pursue a cause of action
against the grantor. The difculty involves the quality of the
grantor, who may not be alive, in existence (if a corporation), or
nancially solvent. The personal warranty of the grantor can be a
very good method of title assurance, especially when the grantor is
large, solvent, and reputable. A solvent grantor (Exxon Mobile)
probably provides better assurance than some title companies (but
remember Enron!).
Slide 9
9 Lawyers Title Opinion At one time the most common method of
title assurance. Still frequently used in some of the rural areas
of Texas. It is also used in cases where the chain of title is very
complicated. Commonly thought that the attorneys title opinion
ensures marketable title.
Slide 10
10 1. Most lawyers nd that reading the abstracts and writing
opinions is a time-consuming process; and many purchasers nd that
it is too slow. 2. The lawyer runs the risk that the abstract
compiled may have been improperly prepared or may be missing some
instruments. 3. There is no guarantee in the event that title fails
that the purchaser can have any recovery. 4. There are always the
problems of incompetence, errors in judgment, and mistakes. Lawyers
Title Opinion Disadvantages
Slide 11
11 Abstractors Certicate An abstractor compiles abstracts that
affect parcels of real estate. Abstract reects chain from the
current date back to the origin of title. But it gives the
purchaser no protection in and of itself. An abstract is furnished
to an attorney as basis for the title opinion. Abstractor has a
high level of expertise, particularly in rural counties where there
may be no title companies. An abstractor is normally bonded in the
event there is an error. Bond may be insufcient and purchaser may
need to prove negligence. There is no malpractice insurance
available for abstractors. Abstract only lists the instruments
affecting the property, rather than the specic encumbrances.
Slide 12
12 Abstractors Certificate
Slide 13
13 Title Insurance The most common method of title assurance
used in Texas. Insurance companies write their own policies or
issue from others. Allows for spreading of the risk in the event of
a failure in title. Solvency of title insurance companies is
monitored by TDI. Title companies have their own abstract plants
and abstractors. They also have their own lawyers for title
opinions. The title insurance industry is very tightly regulated by
TDI. All forms are the same, and all procedures and rates are the
same.
Slide 14
14 Resource Texas Department of Insurance
www.tdi.texas.gov
Slide 15
15 Title Insurance A title insurance policy is a contract of
indemnity. One-time premium charge. Indemnies (protects) from loss
in the event title fails for any defect that accrued prior to the
effective date of the policy. Law creates an afrmative duty on the
title company to investigate claims. Rates are set by the TDI so
there is no advantage to shopping around.
Slide 16
16 Title Insurance Rates Policies Up To And Including Basic
Premium Policies Up To And Including Basic Premium Policies Up To
And Including Basic Premium Policies Up To And Including Basic
Premium $10,000$229$32,500$383$55,000$536$77,500$690
10,50023333,00038655,50053978,000694
11,00023533,50039056,00054478,500698
11,50023934,00039356,50054779,000702
12,00024334,50039757,00055079,500703
12,50024635,00040057,50055480,000707
13,00025035,50040458,00055880,500711
13,50025436,00040758,50056081,000715
14,00025736,50041059,00056481,500717
14,50026037,00041359,50056782,000721
15,00026237,50041760,00057182,500725
15,50026638,00042160,50057583,000729
16,00027038,50042561,00057883,500731
16,50027439,00042761,50058184,000734
17,00027739,50043162,00058584,500739
17,50028140,00043462,50058985,000742
18,00028540,50043863,00059185,500745
18,50028741,00044063,50059486,000748
19,00029041,50044564,00059886,500752
19,50029342,00044864,50060287,000756
20,00029842,50045265,00060587,500759
20,50030143,00045465,50060888,000762
21,00030543,50045866,00061288,500766
21,50030844,00046166,50061789,000770
22,00031244,50046567,00062089,500772
22,50031545,00046967,50062190,000775
23,00031845,50047268,00062590,500779
23,50032146,00047568,50062991,000783
24,00032546,50047969,00063291,500787
24,50032847,00048169,50063592,000789
25,00033247,50048570,00064092,500793
25,50033548,00048970,50064493,000797
26,00033948,50049371,00064793,500801
26,50034249,00049671,50064994,000802
27,00034549,50049972,00065294,500806
27,50034850,00050372,50065695,000811
28,00035250,50050673,00066095,500814
28,50035551,00050873,50066396,000816
29,00035951,50051274,00066796,500820
29,50036252,00051674,50067197,000824
30,00036652,50052075,00067497,500828
30,50036953,00052375,50067698,000830
31,00037353,50052776,00068098,500834
31,50037654,00053076,50068399,000838
32,00037954,50053377,00068799,500841 100,000843
Slide 17
17 Title Insurance Rates 1. For policies of $100,001 -
$1,000,000 (1) Subtract $100,000 from policy amount. (2) Multiply
result in 1.(1) by $.00534 (3) Add $843 to result in 1.(2). 2. For
Policies of $1,000,001 - $5,000,000 (1) Subtract $1,000,000 from
policy amount. (2) Multiply result in 2.(1) by $.00439 (3) Add
$5,649 to result in 2.(2). 3. For policies of $5,000,001 -
$15,000,000 (1) Subtract $5,000,000 from policy amount. (2)
Multiply result in 3.(1) by $.00362 (3) Add $23,209 to result in
3.(2). 4. For policies of $15,000,001 - $25,000,000 (1) Subtract
$15,000,000 from policy amount. (2) Multiply result in 4.(1) by
$.00257 (3) Add $59,409 to result in 4.(2)
Slide 18
18 Title Insurance The Solvency Issue In bad economic times
title insurance claims always increase. To ensure solvency TDI sets
the premiums based on risk, losses, prots, and operating expenses.
If title fails, the underwriter will stand good for the loss. If
the title company becomes insolvent TDI places the company into
receivership and provides a fund for claimants to pursue damages.
TDI further limits how much insurance any title company can write.
In large transactions, one may have to utilize the services of two
or more title companies to either co-insure or reinsure.
Slide 19
19 Title Insurance Preliminary Title Information Usually
includes obtaining a title commitment. It is not an opinion or
report of the status of title. It obligates the insurer to issue a
policy subject to its terms and requirements. The commitments
terminates after 90 days. A representation by the title company as
to who has good title. One may require a nothing-further certicate
which updates title for loans, peace of mind, or assurance that
disputed liens are removed. The nothing-further certicate is
typically issued for a nominal charge by the same company that
issued the original title policy.
Slide 20
20 TREC One to Four Family Residential Contract (Resale)
Slide 21
21 Title Insurance Types of Title Insurance Policies There are
normally two policies issued: one issued for the benet of the
lender, and one issued for the benet of the new owner. The loan
title policy is generally issued at a nominal cost and insures that
the lenders lien priority is good. This policy has different title
coverage than the owners title policy. Both continue coverage for a
period of time, even after resale. Upon resale the owners policy
converts to a warrantors policy. In foreclosure the mortgagees
policy continues in force. The mortgagee can also assign the
mortgage to another lender, and the policy stays effective for that
new lender.
Slide 22
22 Title Insurance Good and Indefeasible Title The owners
policy guarantees good and indefeasible title. This is a higher
duty of care to the owner than marketable title. Marketable title
means the title is reasonably free of defects of record.
Indefeasible title has been dened as a title that cannot be
defeated, set aside, or made void. Title insurance guarantees much
more than just marketable title. It guarantees against forgeries in
the chain of title, incapacity of parties in the chain of title,
unrecorded interests that may affect the property, and virtually
any other defect of which the owner had no actual knowledge or
constructive notice.
Slide 23
23 Title Insurance Scope of Coverage The basic duty of a title
company is not to disclose defects of title, but to indemnify
against any loss from defects in title. It insures the real estate
at the purchase price. It does not increase in coverage as the
value of the real estate increases, unless an additional premium is
paid. The duty to defend is generally set out in the terms of the
policy. Does ensure access to the parcel but not the quality of
that access.
Slide 24
24 Covered Risks Form T-1R: Owner Policy of Title Insurance
This Policy covers the following title risks subject to the
Exceptions (p.___) and Exclusions (p.___), if they affect your
title to the land on the Policy Date. We do not promise that there
are no covered risks. We do insure you if there are covered title
risks. 1. Someone else owns an interest in your title. 2. A
document is invalid because of improper signature, acknowledgment,
delivery, or recording. 3. A document is invalid because of
forgery, fraud, duress, incompetency, incapacity or impersonation.
4. Restrictive covenants apply to your title. 5. There is a lien on
your title because of: a mortgage or deed of trust, a judgment,
tax, or special assessment, or charge by a homeowner's or
condominium association. 6. There are liens on your title for labor
and material which have their inception before the policy date.
However, we will not cover liens for labor and material that you
agreed to pay for. 7. Others have rights in your title arising out
of leases, contracts or options. 8. Someone else has an easement on
your land. 9. You do not have good and indefeasible title. 10.
There are other defects in your title. 11. There are other liens or
encumbrances on your title. This Policy also covers the following
title risk: You do not have any legal right of access to and from
the land.
Slide 25
25 Title Insurance Obligation to Defend The title company
insures against loss or damage incurred as a result of the ve items
specied on the face of the policy. The company is not required to
defend any claims excluded from coverage under Schedule B of the
standard form (the standard exceptions).
Slide 26
26 Title Insurance Notice to Company The insured party must,
within a reasonable time, give the company written notice of the
pendency and authority to defend. The company is not liable for
damages until it has reached the court of last resort and such
adverse interest or claim has been established.
Slide 27
27 Title Insurance Continuing Coverage If any title problems
arise after the insured has sold the property, he still has title
insurance coverage. The coverage extends into perpetuity. The
company insures not exceeding the amount of insurance stated on the
face of the policy.
Slide 28
28 Title Insurance Standard Exceptions There are certain
standard title exceptions included in the title policy against
which the title policy will not insure the purchaser, unless an
additional premium is paid or special riders are attached to the
policy. These exceptions are listed under Schedule B of the policy.
They are as follows:
Slide 29
29 Title Insurance Standard Exceptions 1. The following
restrictive covenants of record itemized below (the Company must
either insert specic recording data or delete this exception).
Slide 30
30 Title Insurance Standard Exceptions 2. Any discrepancies,
conicts, or shortages in area or boundary lines, or any
encroachments or protrusions, or any overlapping of improvements.
This exception (except for shortages-in-area) can be deleted in
residential policies for an additional premium of 5% of the basic
rate. This requires the title company to use an approved surveyor.
If the discrepancy is due to the surveyors error, the title company
has no liability.
Slide 31
31 Title Insurance Standard Exceptions 3. Homestead or
community property or survivorship rights, if any, of any spouse of
any insured.
Slide 32
32 Title Insurance Standard Exceptions 4. Any titles or rights
asserted by anyone including, but not limited to, persons,
corporations, governments, or other entities, to tidelands, or
lands comprising the shores or beds of navigable or perennial
rivers and streams, lakes, bays, gulfs, or oceans, or to any land
extending from the line of mean low tide to the line of vegetation,
or to lands beyond the line of the harbor or bulkhead lines as
established or changed by any government, or to lled-in lands, or
articial islands, or to riparian rights or other statutory water
rights, or the rights or interests of the State of Texas, or the
public generally in the area extending from the line of mean low
tide to the line of vegetation or the right of access thereto, or
right of easement along and across the same.
Slide 33
33 Title Insurance Standard Exceptions 5. Standby fees and
taxes for the year 20__ and subsequent years, and subsequent
assessments for prior years due to change in land usage or
ownership. Everyone is considered by law to be on notice of taxes
and tax liens. Taxes arise at the rst of every year and stay with
the property until paid. The policy does insure that all taxes
prior to the current year have been paid and that the only taxes
that the purchaser will be liable for are those for the current
year and subsequent years.
Slide 34
34 Title Insurance Standard Exceptions 6. All liens and
instruments creating any evidence of said liens in the property,
and whatever might still be of record at the time the title search
is performed.
Slide 35
35 Title Insurance Standard Exceptions An additional exception
is the rights of parties in possession. Title company may add this
exception where the purchaser waives the inspection of the land by
the title company. Title company may charge an additional fee for
personal on-site inspection of the property. Schedule B also
indicates that the policy is subject to the conditions and
stipulations of any leases or easements shown in Schedule A. Courts
have held that a purchaser has a duty of inspection because the
right of parties in possession is equivalent to constructive
notice. This exception also applies to easements or any other
obvious encumbrance.
Slide 36
36 TREC One to Four Family Residential Contract (Resale)
Slide 37
37 We do not cover loss, costs, attorneys' fees and expenses
resulting from: 1. The following restrictive covenants of record
itemized below: 2. Any discrepancies, conflicts, or shortages in
area or boundary lines, or any encroachments or protrusions, or any
overlapping of improvements. 3. Homestead or community property or
survivorship rights, if any, of any spouse of any insured. (Applies
to the Owner's Policy only.) 4. Any titles or rights asserted by
anyone, including, but not limited to, persons, the public,
corporations, governments or other entities a. to tidelands, or
lands comprising the shores or beds of navigable or perennial
rivers and streams, lakes, bays, gulfs or oceans, or b. to lands
beyond the line of the harbor or bulkhead lines as established or
changed by any government, or c. to filled-in lands, or artificial
islands, or d. to statutory water rights, including riparian
rights, or e. to the area extending from the line of mean low tide
to the line of vegetation, or the rights of access to that area or
easement along and across that area. 5. Standby fees, taxes and
assessments by any taxing authority for the year _____, and
subsequent years; and subsequent taxes and assessments by any
taxing authority for prior years due to change in land usage or
ownership, but not those taxes or assessments for prior years
because of an exemption granted to a previous owner of the property
under Section 11.13, Tax Code, or because of improvements not
assessed for a previous tax year. 6. The following matters and all
terms of the documents creating or offering evidence of the matters
(We must insert matters or delete this exception.) Schedule B
Exceptions Form T-1R
Slide 38
38 Schedule B Exclusions Form T-1R 1. We do not cover loss
caused by the exercise of governmental police power or the
enforcement or violation of any law or government regulation. This
includes building and zoning ordinances and laws and regulations
concerning: a. Land use b. Improvements on the land c. Land
division d. Environmental protection 2. We do not cover the right
to take the land by condemning it, unless: a. a notice of exercise
of the right appears in the public records on the Policy Date, or
b. the taking happened before the Policy Date and you bought
without knowing. 3. We do not cover title risks: a. that are
created, allowed, or agreed to by you, b. that are known to you,
but not to us unless they appeared in the public records, c. that
result in no loss to you, or d. that first affect your title after
the Policy Date. 4. We do not cover the effect of failure to pay
value for your title. 5. We do not cover lack of a right: a. to any
land outside the area specifically described in item 3 of Schedule
A, b. in streets, alleys, or waterways that touch your land. 6. We
do not cover any claim based upon allegations that your purchase of
title: a. was a fraudulent conveyance, transfer, voidable
distribution, or voidable dividend; b. should be subordinated or
recharacterized as a result of equitable subordination; c. was a
preferential transfer unless. 7. We do not cover the refusal of any
person to buy, lease or lend money on your land because of
unmarketability of the title. 8. We do not cover claims concerning
the physical condition of your land or of the access to your
land.
Slide 39
39 Title Insurance Disadvantages Insuring a property, the value
of which may exceed the value of the title insurance companys
assets. A similar exception would be the purchase of land because
it would not cover the cost of the subsequent improvements erected
on that property, unless the title policy has specic provisions for
renewal in the event of construction of the specied improvements.
The same applies to normal inationary increases in real estate
values, unless an additional premium is paid to increase coverage.
Another major exception is one in which the grantor of a piece of
property is probably more solvent than the title company.
Slide 40
40 Questions for Discussion 1. What is the real estate agents
job with regard to evidence of title? 2. What is marketable title?
3. What is good and indefeasible title? 4. What are the three most
common methods of title assurance used in Texas? 5. What are the
two most important issues when a purchaser is considering title
assurance?
