Title Commitment
A title commitment is given to Buyers prior to closing to inform the Buyer regarding title to the property. The Buyer is allowed to review the commitment and talk to an attorney or the Title company or their agent if they have any questions on any of the information on the commitment. The Buyer usually only has several days to let the Seller know if anything on the commitment is unacceptable to the Buyer.
Protection against hazards of title is available with a unique insurance called title insurance. Other insurance policies are purchased for possible futures issues; however, title insurance is purchased with a one-time payment to safeguard against loss arising from hazards or defects. Title insurance is all about risk elimination before insuring.
There are two types of insurance:
- Owners' policy lasts as long as the insured or the heirs have an interest in the property.
- The Lenders' policy decreases and eventually disappears as the loan is paid off. Most Lenders require this insurance policy just as they require the fire insurance.
Title insurance starts with the search of public records for matters that could affect the title. Any issues that are found that do not allow for a clear transfer of title must be corrected or a clear transfer cannot occur. Here are some examples that present concerns: Incorrect names, outstanding mortgages, judgements, tax liens, easements, incorrect notary acknowledgements. However, even the most careful search to eliminate risk cannot find hidden hazards of title.
Some hidden hazards that could occur are things like:
- A forged deed.
- Transfer documents that were executed under an expired or false power of attorney.
- Heirs that have claims to a property.
- Mistakes in the public records, to name a few.
Understanding the Title Commitment
The Title Commitment is divided into several sections:
- Schedule A
- Schedule B, which includes the Requirements, the Exceptions, and the Exclusions. The title commitment should be accompanied by the documents referred to in Schedule B. Schedule B may be the most important part of the Title Commitment
Schedule A:
1. Commitment Date
2. Policies to Be Issued, Amount, and Proposed Insured
3. Interest in the Land and Owner
4. Description of the Properties being insured
Schedule B:
The Requirements section lists what things must be done before escrow can close and title insurance will be issued. If a requirement can not be met, close of escrow may be prevented or delayed. Talk to the escrow officer about fulfilling any unusual requirements as soon as possible to avoid a delay in close of escrow.
Examples of Requirements:
- Payment of taxes
- Recording a release
- Reconveyance of the deed currently encumbering the property
- Recording the new deed
- Recording the documents securing the new loan.
- Other requirements may include approval by the trustee in bankruptcy
- Recording a disclaimer deed from a spouse
- Recording a court order evidencing the authority for one person to act on another's behalf
- Copy of a trust, Corporation, or LLC paperwork
- Releases of various other types of liens.
- Proof of Identity
The Exceptions section discloses the exceptions that the title company will not cover against. It also generally includes certain standard exceptions such as mineral and water rights. The title insurance policy will not insure against loss, nor will the title insurer pay costs, attorney fees, or expenses, resulting from title problems listed in Schedule B. Buyers are often unaware that they need to read the exceptions to coverage. If an exception is unacceptable to the buyer, the buyer and the agent may be able to convince the title company to remove it, insure over it (with an endorsement), or eliminate the exception by obtaining a release, affidavit, waiver, quitclaim deed or other document. However, if the unacceptable exception is not discovered and objected to within a short period of time from date of receipt, there may not be time to address the unacceptable exception and the buyer may be forced to close escrow subject to the exception. Talk to the escrow officer or an attorney if there are questions or concerns regarding the exceptions on the Title Commitment for disclosure items and for restrictions on the use of the property.
Examples of Exceptions:
- Any facts, rights, interests, or claims that are not shown in the Public Records but that could be ascertained by an inspection of the Land or by making inquiry of the persons in possessions of the land.
- Any encroachments, easements, measurements, variations in area or content, party walls or other facts which a correct survey of the premises would show.
- Road ways, streams or easements, if any, not shown by the public records, riparian rights and the title to any filled in lands.
- Unpatented mining claims, water rights, and claims or title to water.
- Possible additional tax assessment by reason of new construction or improvements pursuant to the provisions of the Acts of Assembly relating thereto, not yet due and payable.
- Further exceptions will be noted on the title commitment.
The Exclusions section discloses the exclusions that the title company will not cover.
Examples of Exclusions:
- Any law, ordinance or governmental regulation relating to the use of the property
- Any governmental police power, unless recorded
- Rights of eminent domain, unless recorded
- Defects, liens, encumbrances, adverse claims or other matters agreed to by the buyer
- Claims arising from bankruptcy or other creditors' rights laws
Specific Title Commitment Issues
Easements: An easement gives persons other than the owner access to or a right of way over the homeowner's property. Common easements include utility easements and roadway or access easements. Easements may be an issue if the buyer is planning on building a pool or adding improvements to the home.
CC&R's and other Deed Restrictions: A declaration of covenants, conditions and restrictions ("CC&Rs") for a homeowner's association is recorded against the property. The CC&R's empower the homeowner's association, if there is one, to control certain aspects of the home. If there is no homeowner's association, the CC&R's can be enforced by the other homeowners. A homebuyer should always carefully read the CC&R's (and any other association documents) because the buyer will be obligated to comply with all the rules and restrictions.
Access: Failure of the public record to disclose a right of access to the land will be noted in the Title Commitment. Although landlocked property can be sold the lack of access must be disclosed to the buyer.
Military Airports: Buyers in areas in the vicinity of a military airport will find this information on a title commitment.
Judgments: A recorded judgment is a lien on all real property of the judgment debtor. A judgment lien against the seller usually must be paid prior to close of escrow.
Bankruptcy: If the seller has filed bankruptcy, the bankruptcy trustee will have to approve of the sale prior to close of escrow or a court order may be necessary. The seller's bankruptcy attorney should be able to assist in obtaining the approval, but be sure to allow enough time for the process.
Liens: There are numerous types of liens that may need to be paid and released before escrow can close. These liens may include state and federal tax liens. State tax liens are extinguished if the state takes no action for six years. By filing a Notice of Federal Tax Lien, the government establishes its interest in the property and any property acquired after the lien is filed. Mechanics liens and liens arising from environmental laws may also become an issue.
EndorsementsIn addition to the coverage available under the title insurance policy, a buyer can obtain additional coverage through endorsements. These endorsements may be available for little or no cost.
The Title Insurance Policy
The title insurance policy will be issued as of close of escrow. Title insurance does not insure that a title defect will not occur; it insures that if a defect that occurred prior to the policy date becomes apparent, the buyer will be indemnified if the defect cannot be cured. A standard policy generally insures against the title to the property being vested other than stated in the policy; any defect in or lien or encumbrance on the title; unmarketability of title; and lack of a right of legal (not necessarily physical) access. The policy generally contains the same sections as the Title Commitment.
I always suggest that you talk to the title company that is issuing the title policy and/or an attorney if you have any questions.
