TITLE COMMITMENTS: WHAT ARE THEY?
A commitment for title insurance (“Title Commitment”) provides a buyer and lender with terms and conditions for how the final title policy will be issued. Title insurance offers protection for buyers and lenders from certain defects or errors in the title to a property. There are four main parts (called “Schedules”) of the title commitment.
WHAT IS IN EACH SCHEDULE TO THE TITLE COMMITMENT AND WHAT SHOULD A REALTOR REVIEW?
Realtors need to be knowledgeable about the title commitment so that they can direct their client to the appropriate parts of the commitment to review. Issuance of the title commitment is an important part of the closing process for a buyer because it shows the buyer what type of coverage they are going to receive and also the limitations (called “Exceptions”) to that coverage.
Schedule A of the commitment represents DETAILS of the transaction. Section 1 of Schedule A lists the types of policies that are going to be issued (Owner’s Title Policy and/or Lender’s Title Policy). When representing a buyer, a realtor should review this portion of Schedule A to be sure that their buyer’s name and the sales price are shown correctly. Section 2 of Schedule A shows the type of interest that the buyer is going to acquire in the property, which in most sales should always be “Fee Simple.”
Section 3 shows who the legal owner of the property is after a search in the real property records. Section 3 is important for both the selling and listing agents to review to make sure that the names listed here match the seller on the contract. If there are additional people listed here, that did not sign the contract, then you likely do not have a valid binding contract. There are many reasons why this may not match and they typically include issues like: a death or divorce in the chain of title, bankruptcy or marriages since acquisition of the property. In all cases, something shown in this section that does not match the contract means that the listing agent and sellers need to work closely with their escrow team to help work through any issues. The agents work on getting additional signatures on the contract as quickly as possible.
Section 4 of Schedule A shows the legal description. When dealing with real property it is the legal description that controls the transaction, not the physical property address. Legal documents that are recorded at closing should always describe the property by the description found in Section 4. Realtors should review this section to be sure what is shown here is what the parties mean to transfer at closing.
This schedule is directed to the buyer and lender that will receive a title policy. This schedule includes the EXCEPTIONS to the policy that will be issued. An exception is something that will not be covered in the title policy and Schedule B includes both standard exceptions and property specific exceptions. A “standard exception” is one that includes promulgated language from the states Department of Insurance. These are exceptions to coverage that are to be found in every Owner’s or Lender’s title policy that is issued. These exceptions do not change. A specific exception is one that affects the property to be insured and is not standard in all state title policies. Specific exceptions can include things like: restrictions, easements, mineral severances, and setback requirements. A buyer’s agent should encourage their client to review Schedule B in detail as Schedule B tells a buyer about possible limitations in use or encumbrances on the property.
Schedule C can be thought of as the “Clear To Close” schedule, because the items listed here must be addressed prior to or at closing in order for a title company to fund and issue its policies. We call them REQUIREMENTS. This section lists items such as: mortgage liens, tax liens, abstracts of judgment, and assessment liens. Schedule C also lists any requirements that must be satisfied to get to closing. This schedule is important to both buyers and sellers as it itemizes what has to be satisfied before closing can occur. A seller needs to pay special attention to this schedule, as it is the checklist of tasks for them to cure in order to close on time. Many “simple” matters are easily resolved by tasks that the closing team handles through the closing process. Most commonly these are matters like ordering a payoff statement on an existing lien or tracking down certified copies of documents. The more complex matters will require participation by the seller and listing agent to be able to get to closing on time. Therefore it is important for the listing agent to work closely together with their trusted closing team to be sure everything is on track.
This schedule is primarily for disclosure purposes. This schedule outlines the parties who have a share in any part of the title premiums, including underwriters and title agents.
Understanding the title commitment is an important part of the closing process for a realtor. The title commitment sets out the framework for how smoothly a transaction can go (or not in some cases). Working with your title and transaction team is a great way to make sure that you have a very knowledgeable team on your side to help your clients through any transaction.