TITLE INSURANCE TERMS

abstract of title 
The condensed history of the title to a particular parcel of real estate, consisting of a
summary of the original grant and all subsequent conveyances and encumbrances
affecting the property and a certification by the abstractor that the history is complete
and accurate.

abstract plant
A geographically filed assemblage of title information which helps expedite title
examinations, such as copies of prior title policies, plats, and copies of the public records.

appraisal
An estimate of value conducted by a licensed appraiser. Based on the assignment, an
appraiser will estimate value based on market comparisons, assessed value or insurable
value. Most residential real estate appraisals compare the subject property to other
similar properties in the same area that have sold recently.

binder
Interim construction binder is a preliminary policy issued to the lender in regards to construction on the property.

chain of title
The chronological and successive composite of all the instruments affecting the ownership
of a property. The chain of title starts with the original source of title (for example, the
State of Texas) to each successive owner to the present day. Each conveyance is a link in
the chain.

closer
See “escrow agent.”

closing
The consummation of a real estate transaction, when the seller delivers title to the buyer
in exchange for payment by the buyer of the purchase price. Closings typicallly take place
at the title company, but are sometimes conducted at an attorney’s office.

closing costs
Various fees and expenses payable by the seller and buyer at the time of a real estate
closing, set out in the settlement statement.

closing statement
Also known as a “settlement statement” or “HUD-1”, the closing statement is a
summation, in the form of a balance sheet, prepared before and executed at closing which
shows the amounts of debits and credits to which each party to a real estate transaction
is entitled.

cloud on title
An irregularity or encumbrance which, if valid, would adversely affect or impair the title.
Clouds on title must be cured (see “curative”) prior to closing.

community property
Nine states (including Texas) have community property laws which pertain to all property
that has been acquired during a marriage (other than a gift or inheritance). Even if one
spouse earns all the money to acquire the property, all the property acquired is
considered to be community property. While there are a number of differences in each
state, all states have special laws that operate on the theory that both spouses contribute
equally to the marriage; thus all property acquired during the marriage is the result of the
combined efforts of both spouses. In community property jurisdictions, spouses equally
own all community property (fifty percent owned by the husband and fifty percent owned
by the wife).

contract
A legally binding and enforceable agreement between two or more persons regarding an
exchange (of money, property or services). In order to be valid, a contract
must be between two or more legally competent partieis and include an offer, an
acceptance and consideration.

curative
The body of measures required by the examiner to “cure” defects in the chain of title, to
correct erroneous or ambiguous instruments, and to reconcile record title with the actual
use and possession of the land.

earnest money
An amount of money deposited by a prospective buyer as evidence of good faith under
the terms of a contract. The earnest money deposit is forfeited if the buyer defaults but
applies to the sales price if the sale is closed.

easement
A right to use the land of another for a specific purpose, such as for right-of-way or
utilities.

encroachment
A building or some portion of it (for example, fences, garage eaves, deck encroachments
into power line easements, roof encroachments over building lines, and misaligned
driveways) that extends beyond the land of the owner and illegally intrudes onto a portion
of an adjoining owner’s property. Encroachments will be noted on the survey and in the
title policy.

encumbrance
Any lien (such as a mortgage, tax or judgment lien, or an easement or a restriction on the
use of the land) that may diminish the value of a property; a cloud against clear, free title
to property.

escrow
An agreement between two or more parties providing that certain instruments or property
be placed with a third party (usually a title company) for safekeeping, pending the
fulfillment or performance of a specified act or condition.

escrow account
An account held by the lending institution into which the borrower pays taxes, insurance
and special assessments and from which the lender pays these sums as they become due.
This type of escrow account is not the same as being “in escrow” or “in contract” during
the sale of real estate; this type of escrow account is optional to most borrowers but is a
popular option, as they can avoid large annual lump-sum insurance or tax bills by paying
into their lender’s escrow account each month.

escrow agent
Also known as a closer or settlement agent, the escrow agent is the disinterested third
party responsible for receiving and holding funds and documents related to a real estate
transaction, for preparing the HUD-1 Settlement Statement, and for closing the
transaction in accordance with instructions.

exception
A provision in a title insurance binder or policy which excludes liability regarding a
specified title defect or an outstanding lien or encumbrance.

fiduciary relationship
A relationship of trust, confidence and responsibility, such as between trustee and
beneficiary, attorney and client, or agent and client. The fiduciary party must exercise
obedience, loyalty, disclosure, care, accountability and responsibility.

forfeit
The act of losing money or a right as a result of failure to perform an agreement,
obligation or duty.

hazard insurance
Also called “homeowner’s insurance” or “property insurance”, provides coverage for
specific physical property hazards such as fire, wind, earthquakes and vandalism. During
the closing of a property sale, the buyer is almost always required to obtain some form of
hazard insurance.

homestead
Property designated as a primary residence, which under Texas Homestead Law is
protected from forced sale to pay debts.

homestead exemption 

A rule that discounts the value of your primary residence for taxing purposes.
Homeowners are eligible for the exemption if the property was their primary residence on
January 1, if it is owned by an individual (not a corporation or partnership) and if they
apply to the appropriate taxing authorities.

HUD-1
Also known as a HUD-1 Settlement Statement or the Uniform Settlement Statement, this
form is required on every federally related mortgage transaction. It provides a financial
snapshot of the closing, documenting in balance sheet format all the monies flowing into
and out of settlement. The Settlement Agent is responsible for preparing the HUD-1 and
closing the transaction in accordance with several documents. (See “escrow agent”).

index
1) An alphabetical listing in the public records (county clerk’s office) of the names of
parties to recorded real estate transactions, together with the volume and page where the
recorded instrument can be found; 2) The geographic listing in abstract and title plants of
recorded real estate instruments in groups according to land descriptions; 3) The
alphabetical listing in abstract and title plants which affect but do not describe particular
real estate, such as judgments, powers of attorney, wills and probate proceedings.

loan title policy                                                                                                                                                                    A “loan title policy” is a  title insurance policy that protects a lender against
loss. The lender is protected only as long as the loan is outstanding and for the amount
of the loan balance at any given time.

lien
Claims or charges against property that serve as security for obligations or debts. Liens
may be created by a contract such as a mortgage, or by operation of law, such as a
mechanics lien or a tax lien.

loss
1) Damage suffered by a person due to defects in or liens upon his title to real estate. 2)
Money paid by the title insurance company in settlement of policy claims.

owners title policy
A title insurance policy that protects a buyer or owner against loss by reason of defects in
title. Policies can exclude certain encumbrances or defects. Owners title policies protect
owners even after a property is sold if title was warranted in the sale. Title company will
defend the owners title in court or cure the title defect on behalf of the owner.

premium
The amount paid for an insurance policy. Title insurance policies are paid in one upfront
payment.

prepaid item
Item on a closing statement that has been paid in advance by the seller, such as
insurance premiums or homeowners association fees, for which he or she will be
reimbursed by the buyer. Can also refer to items required by a buyer’s lender to be paid
in advance such as accrued interest, mortgage insurance premiums or hazard insurance
premiums.

prorate 
To divide or distribute expenses, either prepaid or paid in arrears, between buyer and
seller at the closing (such as taxes, interest, rents).

rate
The cost per dollar unit of title insurance, used to set the premium. For example, the rate
for a $10,000 title insurance policy is stated as (so many) dollars. Mandated by the Texas
Department of Insurance.

risk
Exposure to loss. A title insurance company assumes the risk incident to a possible title
loss when it insures the owner of the title.

settlement agent
See “escrow agent.”

survey
The process by which boundaries are measured and land areas are determined; the onsite
measurement of lot lines, dimensions, position of buildings on a lot, and any
encroachments or easements.

title
Evidence of ownership of property; the right to own property. The sale of real estate
transfers title from one party to another.

title defect
A blemish, imperfection or deficiency that could result in another party laying claim to a
property. A defective title is one that is irregular or faulty. Title defects must be cured
(see “curative”) before closing. Also referred to as a “cloud on title.”

title examination
Also known as simply an “examination,” this term refers to the perusal and study of all
instruments and muniments that affect the title of a particular piece of real estate. The
examiner determines the effect and condition of each instrument and determines if the
title is free and clear or if it is clouded or defective.

title insurance
Indemnity against loss resulting from defects or liens upon a title. See “mortgagees title
policy” and “owners title policy.”

title opinion
The conclusion or judgment of an attorney as to the status of a title based on their
examination.

title plant 
See “abstract plant.”

underwriter
In the mortgage industry, the party that evaluates borrower credit, collateral value, and
the risks involved in making a loan. In the title industry, the underwriter is the insurer
who issues the title policy.