What is a Title Commitment and How Do I Read It?

Lenders must have a good understanding of title insurance. A title commitment is a preliminary document issued to a buyer and lender prior to closing which states the conditions that must be met in order to issue a title insurance policy — to include any exclusions or exceptions.

It’s important that lenders have a good grasp of how to read a title commitment, so that any details about the property are reviewed, addressed, and corrected before closing day. This is all part of maintaining good customer education throughout the closing process. Before the title commitment is issued, a comprehensive title search and review must be conducted with a current survey of the property.

This is more important than you may think, since the title commitment will give you a clue into whether more work is required of the seller to prepare the property for sale. This means any liens, or disputes in property ownership must be resolved before the sale can even take place!

What is a Title Commitment?

When someone says “title commitment” they are talking about an offer to issue a title insurance policy upon closing if the outlined conditions in the document have been met. It also explains to what extent the coverage will be offered. The issuing insurer outlines conditions that must be met in order for the property to be insured, and any risks that are sometimes outlined and excluded from coverage. In this way, the title commitment conveys a comprehensive overview of the various conditions, exclusions, and exceptions that will apply to a particular policy and is based on the history of the property or “chain of title” uncovered in the title search.

Title Commitment Exceptions

One thing lenders need to be mindful of other than simply reviewing a title policy are the exceptions. Exceptions mean coverage cannot be offered in some instances unless the required action is fulfilled, such as removing a lien, paying the required taxes, resolving boundary issues, or clarifying ownership.

Standard Exclusions for Title Commitments:

• Encroachments (boundary issues or matters needing an accurate survey)
• Rights of Parties in Possession (rights of tenants with unexpired lease term)
• Property Liens (construction/workers’ compensation liens)
• Easements (not recorded in public records)

When reviewing title commitment exceptions, take into consideration that if the issues cannot be remedied by the seller, then the buyer may no longer be interested in purchasing the property. It’s important to review exceptions carefully so that any documents, and actions necessary are taken to remedy the problem in a timely manner to avoid closing delays.

How do I read a title commitment?

When you receive a title commitment for review, where do you even start? Begin by checking the accuracy of important details, make note of exceptions, and be certain you plan the required actions (to remedy title exclusions in a timely manner) before the closing date.

General Title Commitment Checklist:

Buyer, Seller, and Lender info is Correct

Legal Description Matches Purchase Agreement & Physical Address of Property

Insurance Dollar Amount is Correct (Usually Total Cost of Property)

Type of Title Insurance Policy is Correct

Premium Rate is Correct

SCHEDULE A:

Date

Type of policy

Policy amount

Names

Quality of estate

Legal description

SCHEDULE B:

Exceptions for rights of parties in possession

Encroachments,  boundary disputes, and matters requiring a survey

Construction and worker’s  compensation liens

Easements not shown in public records

Special Exceptions:

Easements

Covenants

Conditions

Restrictions

Encumbrances

Court actions

Taxes; and

Matters relating to the parties (such as issues relating to partnership agreements, authority questions and marital status)

Learning to read a title commitment and respond promptly to the issues will smooth the real estate transaction process. Bay National Title Company is a team of title insurance experts dedicated to a better closing experience. Call to start working with us today.

SOURCES:

Reviewing and Dealing With Title Commitment Exceptions

A Practical Guide to Title Review