If you ever bought a home or are currently in the process of buying one, you most likely received a document called a title commitment from your title company. It was probably pretty lengthy and you had no idea what to do with it or what any of it meant. Don't worry, you're not alone. I often have first time home buyers asking me what a title commitment is and what it means so let me explain the basics.
A title commitment is given to buyers prior to closing to inform them about the title of the property they are purchasing. The buyer has several days to review the commitment (perhaps with an attorney, title agent, or their realtor) and let the seller know if anything on the commitment is unacceptable. It will disclose to all parties all the liens, defects, and burdens, if any.
The title commitment is divided into sections. Schedule A lists the commitment date, the proposed insured and the title policy to be issued, a description of the proposed properties to be covered by the policy and an interest statement about the land and owner.
What’s covered and what’s not?
Schedule B includes the Requirements, Exceptions, and Exclusions.
The Requirements are what must be done before the title insurance can be issued and escrow can close. If any of the Requirements can’t be met, there may be a delay or cancellation of closing. Some of the Requirements may be recording of a new deed, releases of various liens, tax payments, copy of trust paperwork or proof of identify.
Exceptions are what the title company will not cover against (including certain exceptions that are standard, like water or mineral rights.) If the problem is listed in Schedule B, the title insurance policy will not cover against it (nor pay attorney or court fees regarding the problem.) If the buyer protests some Exception, the title company may be convinced to insure over it (with an endorsement) or obtain a release, quitclaim or other document to eliminate the exception. Some examples of Exceptions are interests in the land that can only be found at inspection, easements, and tax assessments for new construction. The buyer, however, should read the Exceptions section carefully as there may be a limited time to make any objections before the title insurance is issued and the closing is completed.
Exclusions are things the title company will not cover, like any government police power over the property, rights of unrecorded eminent domain and claims arising from bankruptcy. The property buyer can get additional coverage through endorsements that might cost little or nothing. Discuss these with your title agent.
At close of escrow, the title insurance policy is issued. The policy doesn’t say that no title defect will occur. It only insures the buyer against the defect if it occurred prior to the policy date. The same sections are usually included in the title insurance policy as are contained in the title commitment.
For more questions about title commitments contact me today!
