Be Proactive — A Guide to Dealing with Title Commitment Exceptions Before Buying a Home
Title insurance is an essential component of real estate transactions across the U.S. every day. Some title policy exceptions are common in the purchase of a home, so getting clarity on these will improve the overall closing experience for all parties involved.
What is a Schedule of Exceptions on a Title Policy?
From the home buyer’s perspective, a schedule of exceptions details any limitations, reservations, or encumbrances on a property. An encumbrance can be a lien (like a mortgage or a tax responsibility), something that affects the physical use of the property like an easement, or a restriction (like a minimum square foot for new construction or limitations on total height). The exceptions are typically in Schedule B, Section II of an ALTA title commitment and come in two types:
Standard:
Most of the standard exceptions are similar across different states and include:
- Rights of parties in possession — such as current tenant with an existing, unexpired lease
- Boundary issues or encroachments — details found on an accurate survey
- Easements — not shown/documented by official public records
- Liens — for construction and worker’s compensation
Special:
Any special exceptions are typically located underneath the standard exceptions in Schedule B, Section II of the policy as well. Special exceptions can be diverse and include things like neighborhood covenants, court actions, easements on official public records, partnership agreements, etc. Within the full title commitment, the document should contain a comprehensive list of both standard and special exceptions.
A title commitment is one of the most critical documents in closing because it details what is covered and not covered by the title insurance policy. It is a crucial step in the home buying process so you know what to expect with not only how you can use your property for the duration of the ownership, but also your accurate legal protections.
Without one it’s impossible to understand the stipulations and exclusions of the title insurance. You may be leaving yourself open to future legal challenges if you don’t examine it carefully.
How You Can Deal with Title Policy Exceptions
When the seller of the property has an existing title insurance policy, a buyer should ask for a copy of the list of exceptions. Doing so will give the potential new homeowner detailed information on which exceptions are and are not covered.
To give you an idea, title insurance typically excludes coverage for:
- Zoning ordinances
- Current taxes
- Easements
- Rights of eminent domain
- Governmental regulations relating to property use
- Bankruptcy claims
Review any exceptions carefully that are included in the new title insurance policy. Working with an experienced title agency will help all parties make the best decisions. If you are unclear about anything included in the exceptions, make sure to ask questions. Once the sale is complete, it will be the homeowner’s responsibility to deal with for the duration the property is owned. So check — and double check!
As mentioned above, many of these exceptions are standard for title insurance in the home buying process. They often are not of the nature that will deter home buyers from proceeding with the purchase. But they are important to know, so the expectations of use of the property (and financial and legal responsibilities) are clear right from the very beginning.
Another important component of dealing with title policy exceptions is reviewing existing recorded documents. Knowing the details of a recorded easement is a great example. Reviewing a copy of the document will let you know who the easement benefits, exactly where it is, and how you can use that piece of the property.
Often, public utility companies will have easements for power lines and water pipes. Find the exact location of an easement on the plat or survey. Once you see it, this will help you to know whether or not it will interfere with any potential way you may want to use the property once it is purchased (immediately or in the future).
What if There are Unacceptable Exceptions?
After the process of reviewing the policy and recorded documents, sometimes potential home buyers will find something unacceptable. What then? Removing an exception might be possible. Work closely with your title company on the details. They may be able to remove it, insure over it, or even possibly discard it if an affidavit or release accompany it.
Clarity is Key to a Better Closing Experience
Taking steps to understand the various real estate terms, reviewing title insurance policies and working closely with your title agency are your best bets in dealing with title commitment exceptions before buying a home.
It is always better to understand any specific stipulations now than find out later that you are left exposed to potential legal/financial issues — or that you can’t use the property in the way you wanted.
Professionals are here to help. Contacting an experienced title agency as soon as possible in the process will give you the comprehensive information you need to make an excellent decision for you and your family.
Bay National Title Company serves clients and properties across the United States. Contact us today.
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