A title commitment is one of the most important documents when closing. That’s because it details what will and won’t be covered in the title insurance policy.
Without the commitment, buyers would struggle to understand what’s included and expected of them. Given how important this document is, we’ve outlined everything you need to know about them below.
Why Do Buyers Need It?
Without this important piece of information, buyers would know little about the property and its history.
Essentially, this document is a promise from the title company to issue a title insurance policy for a home after closing (so long as its requirements are met). Buyers need title insurance as a way to protect against problems that might not be found in public records, are inadvertently missed in the title search process, or may arise from fraud or forgery.
What Information Is in It?
A title commitment is a document that outlines every single detail of the property. Additionally, it lists all of the requirements, exclusions, and exceptions that will be covered by the title insurance if the requirements are met.
The information that’s in it varies from state to state. But, in every state, it indicates if a property title is free and clear of defects.
It’s important to note that all the terms, conditions, and exclusions in the commitment will be the same ones found in the title insurance policy once the home is closed on. So, buyers should be extremely careful when reviewing as anything that’s overlooked could become their issue in the future if they sign off on it.
The Document Structure
A title commitment is categorized into 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.
Even though title commitments vary depending on the state, they will always contain a Schedule A and Schedule B.
Schedule A
Schedule A outlines who will be insured (this is the owner and the lender), the amount of insurance, who currently owns the property, and the estate or interest of the land to be insured.
A legal description of the property can also be found in this section. It’s important to cross-reference all of this information to ensure that it’s accurate and correct. Even the legal description of the property should be compared to prior deeds, policies, and surveys to ensure there are no errors.
Schedule B
Schedule B is what’s used to outline the exceptions, exclusions, and requirements. This part of the document should be carefully read and understood. Otherwise, you could be signing off on something that you don’t agree with or can’t fulfill.
Requirements
Under the requirements in Schedule B, buyers will find a list of things that must be completed or adhered to in order for title insurance to be issued. Essentially, it’s a checklist of items that will need to be completed in order to receive the final policy. Most of the items will have to be done by the seller (for example paying off the existing mortgage, taxes, or liens). But there will be some things that the buyer will need to do.
Some examples of requirements that need to be met by the buyer are tax payments, recording the new deed and loan documents, a release of liens, and proof of identity. Once these conditions are met, the mortgage lender will fund the loan.
But, buyers need to be aware. Even if just one of the requirements is not met or missed, it will seriously affect escrow. So, if you’re a buyer and know that one of the requirements cannot be fulfilled, contact the escrow officer immediately.
Exceptions
The document will also have a list of exceptions. Exceptions are things that are not covered under title insurance. Since this will impact a buyer’s coverage in the future, be sure to carefully read and understand this part.
While reading through the document, if any of the exceptions listed are unacceptable, it might be possible for the title company to remove them, insure over it (with an endorsement), or discard it with a release or affidavit. But, buyers will need to communicate their concerns immediately.
Some examples of exceptions include boundary issues, encroachments, easements not shown in public records, and the rights of parties in possession.
Exclusions
The section for exclusions discloses things that the title company will not cover. Some of the most common exclusions to be aware of are governmental regulations relating to the use of the property, and claims arising from bankruptcy.
You Have to Review It
If you’re the buyer in a real estate transaction, you’ll receive a copy of the commitment before closing. Once received, you’ll only have several days to review it and to consult with the loan officer, realtor, and attorney if necessary.
Note that it’s normally the title company’s responsibility to send a copy to the buyer and lender prior to closing.
But, buyers still have to review the document and see if there are any things that need to be addressed before closing. Based on what’s uncovered in these documents, the closing can be delayed or even terminated.
Given everything that could go wrong with an unclean title, it’s best to have the commitment looked over by a professional or an attorney. The commitment can be technical and without a professional, you could be at risk of bypassing potential issues.
While reviewing the document, buyers should also have a look at the fine print and where the costs were allocated to. Costs listed in the title commitment should be charged to the seller. So, you may want to make sure that this is the case. After all, title insurance is intended to cover the home buyer (and is paid for by the seller).
The only costs that should be charged to the buyer would be for ALTA Insurance (the American Land Title Association policy). This policy is purchased by the buyer and intended to protect against damage for losses related to defects in the transfer. Buyers should expect to pay $100 to $200 for this coverage, plus the price of any endorsements added to it.
Know What to Do If You Want to Change Something
Before signing your title commitment, review it all. This is the time to look out for your own interests and get clarification on any questions or concerns you have.
If you’ve reviewed it and there’s something that you’d like to change, you can’t just verbally request it. Any requests for changes need to be presented in writing to your realtor or attorney right away.
Once it’s in writing, the realtor will pass it along to the seller. The seller will have a specific amount of time to respond before the title commitment can be finalized. So, it’s important that buyers use this as their final opportunity to raise any issues or concerns they have. Otherwise, once finalized, any issues could become their responsibility.
Ultimately, no one should accept a title commitment as it is. We believe that every commitment should be carefully looked over. Otherwise, matters that you may think are unimportant could have a big impact in the future.
As a buyer, also know that you do have a choice when it comes to selecting a title company to work with. This means it’s up to you to do your research and find a company that is trusted.
After all, it’s their responsibility to make sure that all liens and judgments against the property have been dealt with. The company is also responsible for coordinating the purchase or refinancing of the property and dealing directly with the agents, lender, and attorney.
Partnering with a professional like us at New Door Property Transfer means our dedicated team will do all the heavy lifting for you when you get the commitment. Meaning, we will carefully analyze and gather all the information on your behalf. Thus, eliminating any stress and confusion before purchase.
Not only do we know what to look for in a title commitment but can ask the right questions. We will also work with you to determine if an exception for a particular property is appropriate, or if its exclusions will cause trouble in the future.
Our dedicated staff will make sure you get to the closing table without any headaches, so you know exactly what it is you’re buying. We will be there for you throughout the whole process, so nothing is missed.
For more information on how we can help, call us at 610 -549-4129 or email us at info@newdoorpt.com today.