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Careful examination of the title commitment up front can save home buyers from unwelcome surprises down the road.
Real estate transactions involve numerous documents, and they can be confusing to those who are new to the process. One such document is the title commitment, also called the ‘title binder’ or ‘preliminary title report’, which is provided once the purchase agreement for a property is signed. Title commitments get less attention than some of the other elements in the real estate process, but they can reveal vital information if you know what to look for.
In this article, we will share some basic facts about title commitments along with five important things every home buyer should be aware of.
What is the title commitment?
Essentially, it’s a promise from the title company to issue a title insurance policy on the property in question after the closing. The document contains the same terms, conditions, and exclusions that will be included in the title insurance policy, but it is not underwritten or ratified until after closing. Therefore, the title commitment is not legally binding. One of the reasons title commitments are not legally binding is that they outline any conditions that must be met in order for the title company to issue the insurance policy. These conditions may include things like the homebuyer paying unpaid taxes or liens on the property. If these items are not completed, an insurance policy will not be issued. Title commitments also list what the insurance policy will and will not cover once it is written.
Here are five important facts to note about title commitments:
They are not required by law but are strongly suggested.
While not legally required, title commitments can reveal important caveats and aid in a smooth, hassle-free closing. For example, if you are taking out a mortgage, the lender may require a title commitment before they sign the final documents to approve the loan. The document outlines all of the items that your title insurance policy will not cover. Lenders generally want to review these items in an effort to protect their investment.
Title insurance and the title commitment are not the same.
The title insurance policy is a legally binding agreement issued after the closing of a property sale. It protects you as the new owner in the event that an unknown issue affecting the property creates problems with the title at a later date. A title commitment just says that the title company will agree to provide you with an insurance policy.
It’s imperative to carefully review any exceptions listed.
Before issuing the title commitment, the title company researches public records and excludes from insurance coverage any items that might affect the title to the property. These exclusions are known as “exceptions”. If, during your period of ownership of the property, problems stemming from an exception are encountered, they will not be covered by the title insurance policy. While many exceptions are common and not of concern, some can be problematic, impacting ownership or use of the property Exceptions might also be significant because they entail expenses relating to the property, such as covenants requiring payments to the homeowner’s association. For these reasons, it’s vitally important that you and/or your attorney examine the title commitment carefully, understand the exceptions, and determine whether any are unacceptable. Resolving any issues found in the title commitment before buying the property can save you from serious headaches in the future.
Title commitment forms are standardized.
Most title companies across the country utilize title commitment forms distributed by the American Land Title Association (ALTA), which provides consistency and uniformity. The most important things to review on the form are what is not covered and the potential issues that may arise.
There are three primary sections in the title commitment.
- Schedule A: This part of the commitment stipulates the basic facts of the transaction, including: the date of certification (the effective date), the proposed insureds (purchaser and lender), the types and liability amounts of the policies to be issued, the estate being insured, how the title to the state is currently vested (present owner or owners and how they hold title), the legal description and address of the subject property and the estimated title insurance charges, based on provided information. Make sure that all information is spelled correctly and matches the contract including the spelling of the buyer’s name, purchase price, sellers’ information, property address, and legal description.
- Schedule B-1: This section lists the necessary requirements that must be met before a title policy can be issued, including any or all of the following items: releases of deeds of trust, releases of tax liens, entity or estate documentation, releases of judgments, correction deeds, warranty deeds, and deeds of trust. Make sure to get a copy of any applicable legal documents, such as the Power of Attorney, payoff of federal tax liens, death certificates of deceased parties on the deed, etc.
- Schedule B-2: This section lists the exceptions to title. The items not being insured by the title company include seven standard exceptions, taxes, and further burdens such as covenants, conditions, and restrictions (CC&R’s); easements; and/or mineral reservations. The seven standard exceptions are found on every title commitment but may be deleted or revised on the policy. Consult a real estate attorney for guidance with specific exceptions.
If you have any questions about title commitments or any other aspect of the title process, Certified’s experienced professionals are here to help. Please contact us anytime.
About Certified Title Corporation: Since 1994, attorney-owned Certified Title Corporation has been furnishing residential and commercial real estate stakeholders across the nation with robust title insurance, settlement, and escrow services. Renowned for their industry-leading reliability and exemplary level of service and quality, the Maryland-based company helps clients from all walks of life achieve their asset goals. To learn more, call (888)486-5511 or visit https://www.certifiedtitlecorp.com/.
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