In the complicated world of real estate transactions, a title commitment holds immense importance. Understanding the nuances of this critical document will help you educate your clients and ensure a smoother, less stressful closing process.
While the commitment letter may seem filled with boilerplate language and legal jargon, it contains crucial information that helps protect your buyers.
Let’s take a deep dive into title commitments and break down the key sections so you can better guide and advise your clients throughout their journey.
A Clear and Marketable Title
After a contract is signed, an exhaustive title search is performed to determine if there are any encumbrances, liens, legal judgments, or any other roadblocks to a transfer of ownership.
If the search does not reveal any problems, a title commitment (sometimes referred to as a title binder or preliminary title report) is issued. This confirms the title is free and clear and provides the buyer with peace of mind that their purchase is secure.
A standard form created by the American Land Title Association (ALTA) is typically used. It outlines the specifics of the property being bought or sold, including its legal description, address, and any unique identifiers.
Commitment to Issue Policy and Commitment Conditions
The first section is the actual commitment from the title company to issue a policy based on the current status of the title. It specifies the dollar amount of coverage to be issued and lists the name of the current property owner. This demonstrates that the title company is committing to insure the property title, subject to the listed conditions or exceptions.
As an experienced real estate pro, you should scrutinize this section carefully to check that it accurately reflects the property in question. Any discrepancies or errors in the property description could lead to complications later in the process.
If you have questions about the legalese, you should consult with an experienced real estate attorney. They can help you interpret the document and make sure your clients are protected.
This section provides the elemental details about the transaction, including the names of the parties involved (buyer and seller), the purchase price, and the proposed closing date.
This section lists the owner of the property interest and the legal description of the property to be covered. The official description is based on county records and identifies the real estate by lots, blocks, plat maps, or metes and bounds.
Review this description in detail to confirm it matches the intended property your clients are buying or selling. It’s essential that all the transaction details align with your client’s expectations.
Schedule B, Part 1: Requirements
Now we come to the conditions that must be satisfied before a title insurance policy can be issued.
These requirements often include items such as the payment of outstanding liens, taxes, or judgments, as well as the delivery and proper recording and execution of a deed or mortgage. They also encompass payment of the insurance policy premium and any associated administrative charges.
Schedule B, Part 2: Exceptions
This part conveys standard exceptions that appear on most title commitments. It may exclude coverage for any losses or damages related to things like rights of eminent domain, easements not recorded on the public records, and matters that would be disclosed by a survey or inspection. The policy is automatically subject to these exceptions unless they are removed by obtaining additional title coverage.
For buyers of condo units, a title commitment often excludes any loss that results from a lien or assessment in favor of a homeowner’s association (HOA). If this is a concern for your clients, you may be able to negotiate a specific condominium endorsement.
Purchasing property generates an immense amount of paperwork, including applications, reports, contracts, and financial statements. It’s vital for real estate professionals to do their due diligence and help clients review their documentation closely, especially when it comes to their title insurance policy, what’s covered, and what’s not covered.
Ensuring your clientele enjoys the best possible experience is paramount to finding success and a stellar reputation as a knowledgeable real estate professional.
Understanding the title commitment and its various sections helps your clients navigate the complexities of property transactions. Your ability to explain each part of this document and its implications will provide your clients with confidence in their investment — and you.
Partnering with Landtrust Title Services makes it easier to deliver a seamless closing process. Your expertise as a broker is not just about finding the right properties; it’s about guiding your customers through every step of the journey. Contact us today to learn more!