Is Title Insurance Needed For New Construction
The quick answer is yes, well probably yes. As most things in life, this question is not a simple answer. We need to define a few things and set a few assumptions. Let me begin by telling you what title insurance is and why you need it and then end with a few examples.
Note: I do not represent you and am not giving you legal, financial, or real estate advice as your broker. Seek advice from your real estate broker for your specific needs and situation.
What Is Title Insurance?
Title insurance will protect your new construction home against financial loss that results from lawsuits against your home's title. It's purpose is to reimburse your financial loss up to the limit of the policy.
What Types Of Policy Defects Does It Protect Me From?
- Loss due to title defects, liens, or similar issues
- Claims of ownership by other parties
- Problems that arose before you bought the property
Is It Required?
Not if you are paying cash for your new construction home. If you are getting a mortgage to purchase your home, the bank will almost always demand you get an owner's title policy and a loan title policy.
So What Is The Difference Between A Loan Policy And An Owner's Policy?
- Loan Policy - this protects the lender’s interest in the property until the borrower pays off the mortgage. For a complete list of covered risks, see the Covered Risks section of the Loan Policy.
- Owner’s Policy - protects you against losses due to fraud, errors or omissions in previous deeds, or forgery of a previous deed. For a complete list of covered risks in the T-1 policy, see the Covered Risks section of the owner’s policy.
Do I get to pick my own title company?
You may choose any title company you want; you don’t have to use a company selected by a real estate agent, builder, or lender.
Section 9 of the Real Estate Settlement Procedures Act (RESPA) prohibits sellers from conditioning the home sale on the use of a specific title insurance company. You may contact the Consumer Financial Protection Bureau, who regulates RESPA, if you have a complaint.
What doesn’t a title policy cover?
- Defects that are created after the policy is issued
- Defects that you create
- 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
- Violations of building and zoning ordinances
- And a few other items, please refer to this Texas Department of Insurance document.
Buying With Cash In A Master Planned Neighborhood
You are probably safe not getting a title policy.
Buying With Cash In An Established Neighborhood
You are possibly safe not getting a title policy, but this is risky compared to a new neighborhood.
Buying With A Mortgage In Any Neighborhood
Yes, you will need to purchase title insurance.
Buying Land With Cash
I suggest getting a title policy, but it is not required. I would also suggest getting survey insurance.
Buying Land With A Mortgage
Yes, you will need to purchase a title policy. I would also suggest getting survey insurance.