With so many documents to be completed in real estate, it is not surprising how confusing and even overwhelming the process can be. One of the many documents a new homeowner needs to know about is a title commitment. What is a title commitment and what’s included? Let’s talk:
What Exactly is a Title Commitment?
The first thing to know about a title commitment is what they are. In short, a title commitment is a promise from the title company to issue a title policy for your new home after closing. The commitment reveals any liens and encumbrances against the property, the property owner of record, what kind of policies the title company will issue at closing along with any exceptions of coverage in the policy. Once you’ve selected a property, your realtor will order a title commitment. The title company will send the real estate agent and lender a copy when the title commitment is complete.
Normally, the title commitment is time sensitive: you may have just a few days to review the document and consult with your loan officer, attorney, or realtor if necessary. What should you be on the lookout for? Let’s find out:
Before you start signing your title commitment, there are some things to know.
What is Included in a Title Commitment?
A title commitment is made up of five different portions: who is being insured; the amount of insurance; what is being insured; what is required to insure the title; and what is not insured. As a buyer, the parties being insured may include you as the buyer and your lender. The amount of insurance should cover your mortgage loan amount and the property owner’s sales price.
When preparing for closing, it’s important to for all parties to review the commitment upon receipt. Here is a brief overview of the parts of the commitment that should be examined to prepare for closing.
Schedule A: Make sure that all information is spelled correctly and matches the contract including the spelling of the buyer’s names, purchase price, seller’s information, property address, and legal description.
Schedule B-1: Be sure to review each of the following: Are the liens against the property being paid off at closing? Are there any encroachments of record? What other items need addressed?
Schedule B-2: This section lists the exceptions to the title commitment. Some of the exceptions may be deleted or revised on the policy. If buyers have any questions about exceptions, they should talk to a real estate attorney.
Title Endorsements, Exceptions, and Exclusions
In some cases, a lender or buyer may request additional coverage when certain conditions are met. An addition or limitation of title insurance coverage that is attached to the policy is known as an endorsement. Endorsements help title agents better suits the needs of the policyholder.
Every title commitment will vary slightly in the exceptions since it relates directly to the property being purchased. There are some standard exceptions. For properties in a community association, for example, the covenants, conditions, and restrictions (CC&R’s) and other deed restrictions are not covered by insurance. Exclusions and exceptions may be used interchangeably depending on your location, but exclusions should be thought of as exceptions that can’t be removed with an endorsement.