Before closing on the purchase of a piece of property or a home, you will receive a document called a title commitment, a title binder, or a preliminary title report, as part of the escrow process. If you’re like most homebuyers, you may wonder why you’re receiving this document, and what you should do with it. Although many buyers glaze over at the thought of reading a title commitment, knowing what you’re looking at can help you be a more informed homebuyer. Understanding what a title commitment is, how to read it, and what it tells you can give you a better understanding of your transaction and your obligations, and may help you avoid costly misunderstandings down the line.
Why Am I Receiving a Title Commitment
After your title insurance company completes its title search on your home, you will receive, as part of the escrow process, a title commitment. The title commitment constitutes the title company’s promise to provide title insurance, as well as an explanation of any terms, conditions, exclusions, requirements, and exceptions. The document also identifies any specific requirements that need to be addressed prior to closing so that the title policy can be issued. The terms, conditions, and particularly the exclusions will be the same in the title commitment document as in the final policy, so buyers should read it with care, as it outlines the protection they can expect from their title insurance.
What Does a Title Commitment Look Like?
Most title companies use the form provided by the American Land Title Association (ALTA), or a similar document, to issue a title commitment. The title commitment is divided into several sections, each of which contains important information.
Commitment to Issue Policy and Commitment Conditions
The commitment to issue the title policy outlines the title insurer’s commitment to provide the policy, as well as a recitation of the limitations of the commitment.
Title Commitment – Schedule A
Schedule A contains a description of the policy itself, including the commitment date, the legal interest being insured, and a legal description of the subject property. Buyers should review this section to ensure that the final policy will accurately describe the land or home being insured.
Title Commitment – Schedule B
Schedule B contains the requirements, exceptions, and exclusions to the policy, and is the most important part of the document. This is the section where the commitment goes beyond a recitation of boilerplate limitations and actually describes what the buyer can expect in terms of coverage for their specific property.
The requirements section provides a list of the conditions that must be met for a policy to be issued, including requiring the insured to pay the required amount for the property, pay taxes that are accrued but not yet due, properly record the documents showing the transfer of title, and pay the premiums for the policy.
The exceptions and exclusions section lists out, with specificity, what will not be covered by the policy. To start, the commitment will have boilerplate language stating that any title encumbrance that occurs between the date of the commitment and the issuance of the policy will not be covered. Other exceptions will be specific to the property and the transaction. Common exceptions include: mining and mineral rights; utility and access easements; and Homeowners Association covenants. Also excluded will be any governmental regulations regarding the use of the property, including government regulations limiting the use of the property or maintenance of municipal utilities on the property, and rights of eminent domain. Buyers should review these exceptions carefully, and discuss any confusing items with their real estate agent or attorney.
Understanding the Title Commitment
A lot of what’s in the title commitment reads like boilerplate legalese, which may lead a lot of buyers to neglect the detail and toss it aside as another piece of paperwork to be filed away with mortgage applications, inspectors’ reports, and home offer contracts. However, the title commitment is one document that buyers should read carefully, and discuss in detail with their agents and attorneys. Exclusions and exceptions can often be changed, or an endorsement can be added to the policy to cover an exclusion.
As an example, if you’re purchasing a condominium, the title commitment will often exclude losses “resulting from a lien or assessment in favor of a homeowner’s association,” which could create potential title issues during the time you own your condo. However, you may be able to negotiate a condominium endorsement that insures against potential losses resulting from an HOA lien or assessment. Discussing the potential for such an endorsement before the policy is issued may avoid future losses.
In reviewing the title commitment, start with Schedules A and B. Ensure that the property is correctly described in Schedule A, and make sure that you fully understand the exemptions and exclusions of Schedule B. Your attorney, real estate agent, and title company representative should be able to walk you through what each line item means, and whether it can be negotiated or changed. If any of these exemptions or exclusions are unacceptable to you and are noticed in time, you may be able to back out of the purchase without the loss of your earnest money.
Learn More With Your Trusted Title Insurance Company
Buying or selling a home is complicated, and sometimes it seems like you need to learn a whole new vocabulary just to protect yourself! But you don’t have to navigate the ins and outs of title searches or owner’s and lender’s title insurance policies alone.
If you have questions about what title insurance can do to protect you, what it involves, or how to get it, Landtrust Title Services can help.
Landtrust Title was established to fulfill the growing need for partnerships that provide higher service standards and growth opportunities in the title insurance and escrow services industry. At Landtrust, we’re different. We’re customer-obsessed and strive to focus on what you need from start to finish. We strive to deliver service excellence for every real estate transaction. Contact us today at [email protected] or by phone at 312.528.9210 to get answers to all of your questions.