If you are a buyer in a real estate transaction, you will have the opportunity to review a document known as a title commitment prior to closing. The commitment lists the requirements, exceptions, and exclusions to issuing title insurance on the property. It is also a promise, or “commitment,” to issue title insurance so long as the stipulations identified in the commitment are met. Because the document identifies information specific to the property, including easements, liens, and HOA covenants and restrictions, it is very important for the buyer to review it prior to closing.
The commitment is divided into several sections, called “Schedules”:
Schedule A identifies the basics of the transaction: the property to be insured, the effective date of coverage, proposed amount of insurance, type of policies to be issued (Standard or enhanced; commercial or residential, owners’ or lender’s), person(s) in whom title is currently vested, interest in land to be conveyed, and the legal description of the property to be insured. This information is gleaned from the title search or examination.
Schedule B contains “Schedule B-1” requirements and “Schedule B-2” exceptions and exclusions.
Schedule B-1 lists the requirements that must be met for the title underwriter to issue a title policy. Requirements generally include
(1) full consideration for the property;
(2) proof of payment for all bills for labor and material furnished in connection with improvements erected or to be erected;
(3) payment of general and special taxes,
(4) delivery of Mechanics’ lien affidavit and Owner’s/Homeowner’s Affidavit;
(5) Deed of trust executed, delivered and recorded;
(6) Satisfaction and Releases of existing deeds of trust or home equity lines of credit on the property;
(7) Satisfaction and release of all judgment liens or tax liens; and
(8) Satisfaction and release of any other liens affecting the subject property (example: Mechanics’).
Schedule “B-2” of the title commitment lists the risks that the underwriter proposes to exclude from coverage and defines the proposed exceptions from coverage. There are two types of exceptions: standard exceptions, which appear in every title commitment, and special exceptions, which specifically relate to and directly affect the property conveyed. These generally include any:
- Outstanding mortgages or deeds of trust
- Restrictions and covenants that run with the land
- Leases or possessory rights
- Mineral rights or interests
Some of the exceptions may be fixable, like an encroachment or easement. With proper documentation, they may be removed from the policy. Others, like mineral interests or possessory interests, will remain as essentially uncured title defects and should be more closely scrutinized by buyer. According to the sales contract, if title is unmarketable, buyer may pull out of the contract.
In general, the title insurance underwriter will neither insure anything reflected in the public records nor any items not in the public record that the title company acquired special knowledge of through the transaction, survey, leases, or a prior transaction. Note, however: it might be possible to insure over an exception or exclusion with an endorsement, or remove an exception through execution of a release, affidavit, waiver, or quitclaim deed.
Schedule C of the title commitment lists the requirements that must be satisfied as a condition for closing. Items in Schedule C may include showing proof that property taxes and HOA dues have been paid, existing liens have been released of record, and no other party is in possession of the property. Normally these requirements are satisfied by closing. However, if they are not cured by closing, the items are listed in Schedule B of the title policy, excepting coverage from the uncured title defects.
It is important to choose a reliable title company who will thoroughly discuss any title issues present in the commitment with the buyer(s) prior to closing. Call Highland Title today to speak with our team of experienced attorneys – (703) 723-3300.