Title insurance companies in Texas have two primary functions: holding and disbursing funds from escrow accounts, and issuing an insurance policy covering ownership of the property.
Many situations could arise which could be either alleviated or avoided altogether if a title company closed the transaction. Below are some examples of real life situations that could occur in the absence of a title company.
A young couple finds the perfect starter home, “for sale by owner.” They finance the purchase through the seller, so no commercial lender is involved. The “closing” consists of the seller signing over a deed. Five years later, that young couple is ready to move into a bigger home, but when they go to sell their beautiful starter home, they discover that the original owner’s former spouse still has title to the home. If they had used a title company in the first place, the title company would have informed them before they bought the home, saving them time, money, and significant hassle.
A growing family buys a comfortable home with a large yard. A few years later, they add on a wrap-around porch. Soon after, the local power company needs to access underground cables. The power company has an easement along one side of the property, straight through the beautiful new porch. The family had not used a title company when they purchased their home, and so were not aware of the easement. Once the power company has torn up the porch to get to the underground cables, the family has to pay for significant renovations to the porch, repairing it and re-designing it to avoid the easement. Using a title company would have spared that family the cost and hassle.
An investor finds a house at below-market price. The investor pays cash to the seller, and files the deed with the appropriate county offices himself. The investor renovates the kitchen, adds new carpet, repaints, and puts the house back on the market, attempting to flip it for profit. While it’s on the market, the investor receives a payment demand from a contractor. The contractor has a mechanic’s lien on the property, from work done by the previous owner but not fully paid off. Since the investor didn’t use a title company, he didn’t know about the lien. Now the investor is saddled with the debts of the previous owner. This investor learned the hard way about the vital role played by title companies.