Its our first time to build a home. Its on a rural property that we purchased in 2020. Should we pay for an owner title policy on our new build?

Seems out of order - you would have secured a title policy when your purchased the parcel of land. If that hasn't been done then I would let it ride for now. The next time a title policy would be asked for is when you go to sell your house. And they would also ask for an as-built built survey, too.

If you are building your own house on your own property that you previously purchased, I would not secure a title policy at this time IMO

MS08 said:

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Seems out of order - you would have secured a title policy when your purchased the parcel of land. If that hasn't been done then I would let it ride for now. The next time a title policy would be asked for is when you go to sell your house. And they would also ask for an as-built built survey, too.

If you are building your own house on your own property that you previously purchased, I would not secure a title policy at this time IMO

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yes we have one on the land from when we purchased.

however, they called and asked if we wanted another for the total value of the property. i am confused bc i figured the previous land policy would still protect us

Blindside05 said:

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MS08 said:

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Seems out of order - you would have secured a title policy when your purchased the parcel of land. If that hasn't been done then I would let it ride for now. The next time a title policy would be asked for is when you go to sell your house. And they would also ask for an as-built built survey, too.

If you are building your own house on your own property that you previously purchased, I would not secure a title policy at this time IMO

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yes we have one on the land from when we purchased.

however, they called and asked if we wanted another for the total value of the property. i am confused bc i figured the previous land policy would still protect us

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Your original title policy would provide insurance up to the amount you paid for the property (so theoretically assuming a total failure in title for whatever reason you wouldn't have coverage for the increased value related to the improvement). That's a risk decision you should make based on your tolerance.

Keep in mind, if you are getting a loan for construction you are most likely paying for a Loan Title Policy for new lender.

Also you original title policy only covers things up to the date you acquired the property. It won't provide coverage for anything that happened since (including lien claims from subcontractors).

Blindside05 said:

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MS08 said:

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Seems out of order - you would have secured a title policy when your purchased the parcel of land. If that hasn't been done then I would let it ride for now. The next time a title policy would be asked for is when you go to sell your house. And they would also ask for an as-built built survey, too.

If you are building your own house on your own property that you previously purchased, I would not secure a title policy at this time IMO

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yes we have one on the land from when we purchased.

however, they called and asked if we wanted another for the total value of the property. i am confused bc i figured the previous land policy would still protect us

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Say you bought the land for $100k. Your owners policy coverage is up to $100k. You build a $500k house and someone comes along and says that's their land. Or you built your house on top of an undisclosed easement. You make a title claim. The max they will pay you is $100k.

I know I'm in the minority here, but title insurance is cheap in the grand scheme of things. I buy every endorsement they offer me. Look at what your lender requires on their policy and ask for the same thing for the owners policy.

MS08 said:

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Seems out of order - you would have secured a title policy when your purchased the parcel of land. If that hasn't been done then I would let it ride for now. The next time a title policy would be asked for is when you go to sell your house. And they would also ask for an as-built built survey, too.

If you are building your own house on your own property that you previously purchased, I would not secure a title policy at this time IMO

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Whether or not they had a policy for just the value of the land, why would you not recommend coverage for the increased value after building a residence on the property?

hbc07 said:

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MS08 said:

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Seems out of order - you would have secured a title policy when your purchased the parcel of land. If that hasn't been done then I would let it ride for now. The next time a title policy would be asked for is when you go to sell your house. And they would also ask for an as-built built survey, too.

If you are building your own house on your own property that you previously purchased, I would not secure a title policy at this time IMO

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Whether or not they had a policy for just the value of the land, why would you not recommend coverage for the increased value after building a residence on the property?

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When I have enacted title policy claims it was because of events in the past prior to my ownership. To me, once I own the property with a title policy, there is no unknown history between the time I own it and the time my build starts and stops. Again, it's going to be an expense that will be paid at some point (by the seller) so, it stands to reason, why defer the expense instead of paying it now? I'm here for the discussion.

I'm with Marten. It's cheap for what you are insuring. Yes it maybe seen as a 'fluff' fee. But you need to mitigate risk wherever you can.

My issues are with refinances in Texas. They are the title agents "retirement fund". There is no reason to charge a policy owner more than 50% on the new title policy for lowering their rate or pulling equity. They already paid. Nothing changed since he last refinanced.

And cash outs cost significantly more than rate and terms. It just plain bull-sheet.

One more thing, our title fees would be 35-40% cheaper if we had a competitive capitalist market in Texas.

We don't. Rates are regulated by the state. Only insurance in Texas not based on the free market.

85% of the insurance goes to the agent. The remaining 15% is the actual insurance. The state doesn't allow competition for a reduction in the 85% commission which is why our system is broken.

Because if you pay it now you mitigate risk on an investment of 100's of thousands dollars. And if you pay it later you don't.

Seems to be settled then.

Almost all Texas title companies are owned by lawyers. Almost all legislators are lawyers. Do the math

I did that long ago.

Does anyone know why title insurance in Texas is so expensive compared to many other states?

jja79 said:

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I did that long ago.

Does anyone know why title insurance in Texas is so expensive compared to many other states?

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Guess you've never heard of corruption or the good ole boy system?

I'll spell it out for you.
Lawyers own the title companies.
Lawyers make big money on inflated rates.
Lawyers write bills that go before the Legislature.
Lawyers make up a large part of the voting members of the Legislature.
Lawyers lobby the reps/senators with money/connections.
The law is written to guarantee high rates so lawyers can make bank through their title companies.
The free market be damned.

Exactly

Title companies pay big bucks for lobbyists. Consumers/buyers of RE don't. The Realtors don't care. They just want a deal to close regardless of what their clients pay for closing costs.

Mortgage industry does not have the same juice.

Totally agree. I was involved in thousands of mortgage transactions during my career and hope a title company person might weigh in on why Texas has such high premiums compared to many other states. If I were young again that's the business I'd go into.

SteveBott said:

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Almost all Texas title companies are owned by lawyers. Almost all legislators are lawyers. Do the math

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Hey that sounds like the car and home insurance also…

MS08 said:

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hbc07 said:

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MS08 said:

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Seems out of order - you would have secured a title policy when your purchased the parcel of land. If that hasn't been done then I would let it ride for now. The next time a title policy would be asked for is when you go to sell your house. And they would also ask for an as-built built survey, too.

If you are building your own house on your own property that you previously purchased, I would not secure a title policy at this time IMO

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Whether or not they had a policy for just the value of the land, why would you not recommend coverage for the increased value after building a residence on the property?

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When I have enacted title policy claims it was because of events in the past prior to my ownership. To me, once I own the property with a title policy, there is no unknown history between the time I own it and the time my build starts and stops. Again, it's going to be an expense that will be paid at some point (by the seller) so, it stands to reason, why defer the expense instead of paying it now? I'm here for the discussion.

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Because the existing policy maxes out at the value of the land prior to the improvements. If something arises that causes a claim prior to the improvements, great, you get up to what you paid for the land back. If something arises that causes a claim after improvements, you get up to what you paid for the land back and nothing for the improvements which, for a standard SFR, is much more significant than the land.

Ultimately, it depends on your risk tolerance. But as someone who litigated title insurance, that exceeds my risk tolerance.

I've always been a proponent of title insurance. I've not come across OPs situation since I build homes and sell them, so, at time of sale, a title policy is always paid for by us. I was being a bit of a devils advocate in the discussion but it has been fruitful and should offer OP the insight they were looking for

Mas89 said:

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SteveBott said:

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Almost all Texas title companies are owned by lawyers. Almost all legislators are lawyers. Do the math

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Hey that sounds like the car and home insurance also…

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Does it? You have choices for home and auto insurance and the rates aren't set by the government. Companies have to compete for your business unlike title insurance companies. I don't even live in Texas anymore but this scam has long been one of my hot buttons.

Yep.

The Dept of Insurance sets title rates every new year. Every title company in Texas must charge that rate and cost and CANNOT discount the policy costs.
They have a little wiggle room in their administrative charges but that does not move the needle. A couple of hundred bucks at best.

There's a reason that title companies have conference rooms that look like Taj Mahal. And there is a title company every square mile in urban areas.

And sponsor every Realtor event, can't find enough people to take out to lunch, enough golfers for scrambles and then tell you about the vacation to Italy the next time you're at a closing. When you get outside the state you see a completely different industry.

Quick search Houston. Add up monthly rent for these offices

To dig into this more - if I purchased an unimproved piece of land (a lot), and secured a title policy a that time, and then built a house, what type of claim could come up that would be alarming between when the house starts and the house is complete?

As others have said the problem is that the owner's title policy you have on the land itself is only for the value of the land at that time. It is for whatever amount the policy was written for.

If you borrow money to build the house then none of this matters, the lender will require owner's title insurance to the amount of the construction loan on top of the land value. If you build with your own money then it is up to you... but you would have to be pretty stupid to affix hundreds of thousands of dollars of stuff to some land without having insurance in case the land isn't yours.

MS08 said:

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To dig into this more - if I purchased an unimproved piece of land (a lot), and secured a title policy a that time, and then built a house, what type of claim could come up that would be alarming between when the house starts and the house is complete?

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Scenario: Restrictive covenants restricting certain uses/developments on the property missed by title. Purchased raw land for $50k. 5 years later you self-funded $350k a house on the property bringing the valuation of the property and improvements to $450k. A year later a nosy neighbor realizes your house violates the restrictive covenants for whatever reason. You get hit with a lawsuit for violating the covenants and file a claim. Title hires counsel to defend and try to invalidate the covenants, but ultimately, they lose and the resulting judgment requires you to cure the violation which can only be done by demolishing the house (because for some dumb reason 50 years ago they agreed your land was good for hunting and they didn't want anyone to build on it and ruin it). You tell the title company that your property that you put $350k in improvements into that you've now lost and was worth $450k has diminished in value by $425k to only $25k (less than the original raw land price since now everyone knows they can't do **** with it) due to the restrictions they missed. They hand you a check for $50k and walk away saying good luck with the rest. Whereas if you'd obtained a new policy for the increased valuation you'd potentially be getting a check for $425k (subject to a likely diminution in value dispute).


This presumes you didn't get a loan, because if you did get a loan the lender would require a loan policy (which of course only insures up to the amount on the loan) and a simultaneous issue with an owner's policy would generally only be an extra $100.

Real life example: entire block was owned by a family since the 30s. Properties frequently traded between family members. "George" buys one of the lots for ~$80k with the intent on developing it into a few condos. Thankfully before getting platted the city discovered the street it was on was not a public street and actually a railroad right of way (and had been since pre-1900) and did not have access via a public street so they wouldn't agree to replat thereby limiting George's losses.

But say the city didn't notice then and only noticed after building was done and refused to grant final approval on the permits. With no public access you can't do anything with the property and no one's going to want to buy it. George's coverage is limited to only $80k despite having losses substantially more.


There are of course nuances and details omitted from both of these including my belief that George was entitled to an easement by necessity despite the court seemingly being reluctant to agree. But, the fun fact is that that one street was the only street that provided ingress/egress fo another 40 homes who have no idea of this issue despite us raising it to the city to try and get help negotiating with the railroad.