Texas Title Insurance
You have the power, but do you know how to use it?
How do you choose a title company in Texas? Both federal and state laws specifically enforce the consumers’ right to choose their title services provider in a real estate transaction. However, most consumers lack the knowledge to differentiate between title companies, and default to a vendor chosen by their real estate agent or mortgage lender.
New rules adopted by the Consumer Financial Protection Bureau provide fresh emphasis on consumer choice, but again, there are no stated guidelines to help home buyers and sellers make an informed decision on what company should handle their transaction. Most consumers aren’t sure what title companies really do, much less how to judge which one is “best.”
In Texas, title insurance rates are set by the Texas Department of Insurance, so there is no price differentiation to help steer a consumer toward one company over another. The Texas model for title insurance is one of the most consumer-friendly in the nation, with rate-making formulas based on actual costs of doing business, profit margins capped, and discretionary fees low. Since rates are non-negotiable, large commercial customers are not able to negotiate lower rates at the expense of the average consumer, which is the norm in deregulated states. All Texas title policies cost the same one-time fee, based on the sales price of the property.
So, how do you know? What do you ask? What search criteria do you put in the box?
Here is a brief primer on some factors that can truly affect the experience of your transaction, with some clarifying questions to ask as you talk to your real estate agent or mortgage lender, or as you browse title company websites in search of clues.
Are there convenient locations?
With the parties to your transaction in mind, does the title company have a location that is reasonably accessible? Despite the conveniences of the digital age, many aspects of the transaction are best handled in person, and some documents still need “wet signatures” to be legally binding.
Title companies without many options as to brick and mortar locations will offer mobile notary services, but you sacrifice the benefit of working face-to-face with the escrow officer or “closer” who put the transaction together. The closer is empowered to answer questions, catch discrepancies in the documents, make changes as needed to close the transaction smoothly, as well as manage the process of funding the transaction. A notary merely affirms the signatures and cannot provide any other service. And again, you won’t pay any more to sign documents with a qualified professional.
Who’s underwriting the transaction?
Like any insurance policy, title policies are underwritten by a financial holding company that would pay the cost of a claim. The underwriter makes the rules that determine whether your transaction is insurable. This is a business decision that turns on many factors that come up in researching the history of the property. Are there gaps in the “chain of title,” or the history of ownership? Are there buildings that don’t conform to property lines? These issues and hundreds more are considered when a title underwriter assumes the risk of insuring the sale of a property from one owner to another.
When choosing a title company, investigate whether the company has multiple options as to underwriters. Some companies are direct operations of national underwriters, with just a single set of underwriting guidelines. Other companies have the ability to write policies on any of several underwriters. This makes a difference on complicated transactions, when the title company can shop around and choose an underwriter with guidelines that offer workarounds.
Where is the title research handled?
Many large title companies have followed national trends and sent behind-the-scenes jobs to other states or other countries, particularly parts of the title research process. On the ground in your town, this can impact the ability of local employees to get timely answers and solutions when there’s an issue to be cleared up before closing the transaction.
Find out if the company you’re considering has a fully staffed title department at their local headquarters, or at least in your time zone.
What value-added service do I get?
Again, title companies in Texas can’t compete on price, and those that are serious about standing out from the herd offer a range of resources and services to smooth and enhance the experience of buying or selling a home.
Look for things like reports and guides that help sellers answer questions about their property, and explain the closing process for the lay-person. Some offer both printed and online resources that help buyers learn about local schools, taxing authorities, and communities. Some have online resources and mobile applications to help you in estimating closing costs, and connect you with branch locations and other resources.
Except… it’s negotiable in Texas
That is to say, buyers and sellers must ultimately come together and agree on the choice of title company. In Texas, the agreed upon title company is indicated on the promulgated sales contract.
There are arguments on both sides of the issue as to whether sellers or buyers should have their choice. On the one hand, sellers sometimes need the assistance of a title company to resolve known issues that would complicate the sale, even before talking to a potential buyer. And in Texas, typically the seller pays for the title policy insuring the buyer (although this is also negotiable). On the other hand, the buyer is ultimately the insured party, and will have the ongoing business relationship with the title company.
The important takeaway is that you as the consumer have a voice and a vote. All title companies are not the same, and a little research can help you make an informed choice.
About the Author:
Kara McGregor is the Senior Vice President of Business Development at Independence Title. Learn more about Kara.