Understanding the Title Commitment
What is a title commitment?
A title commitment is the document by which a title insurer discloses to all parties connected with a particular real estate transaction all the liens, defects, and burdens and obligations that affect the subject property. It lists all requirements that must be met before a title company can insure a title as “marketable” or a loan as having a certain priority.
Marketable title is a title free from reasonable doubt or defect, which can be readily sold or mortgaged. It is a title that assures a purchaser “quiet and peaceful enjoyment” of the property, yet marketable title may have certain encumbrances that a reasonable purchaser would be willing to accept.
This assurance of a title commitment by a title company provides a safe procedure for purchasers and lenders to close transactions before the actual title policies have been issued.
Parts of the title commitment
When preparing for a real estate transaction closing, it is important for all parties to review the commitment upon receipt. Below is a brief overview of the parts of the title commitment that should be examined to prepare for a smooth closing.
Sections: Schedule A, B-1, and B-2
Schedule A: This part of the commitment stipulates the basic facts of the transaction, including: the date of certification (the effective date),the proposed insureds (purchaser and lender), the types and liability amounts of the policies to be issued, the estate being insured, how the title to the state is currently vested (present owner or owners and how they hold title), the legal description and address of the subject property and the estimated title insurance charges, based on provided information.
Items to Review in Schedule A upon receipt:
- Make sure that all information is spelled or inputted correctly and matches the contract including the spelling of the buyer’s names, purchase price, sellers’ information, property address, and legal description.
Schedule B-1: This section lists the necessary requirements that must be met before a title policy can be issued, including any or all of the following items: releases of deeds of trust, releases of tax liens, entity or estate documentation, releases of judgments, correction deeds, warranty deeds, and deeds of trust.
Items to review in Schedule B-1 upon receipt:
- Power of Attorney: If any parties are using a Power of Attorney, make sure to get a copy of the POA to your closer well in advance of the closing for review.
- Business Entity: If the seller or buyer is a business entity such as a limited liability company, or partnership, requirements may ask for verification of signing authority.
- Multiple Deeds of Trust: Sometimes the title commitment will show two deeds of trust on a property, yet the seller has only a single loan. Notify your closer immediately if this is the case so that a Release of Deed of Trust from the previous lender or a Letter of Indemnity from the previous title company can be obtained.
- Federal Tax Liens or Judgments: The requirements may show these items. If these liens do affect your seller or buyer, please contact the appropriate parties to obtain payoff information. If the liens show up as a result of a common name, the seller or buyer may be asked to supply additional information to verify their identity.
- Death Certificate: If one of the parties has passed away but the title has not cleared, a death certificate must be recorded in lieu of the other party signing the Warranty Deed. Contact a legal professional for more information on how to handle a death in a real estate transaction.
- Owner’s Policy on Vacant Land: This type of policy may require an ALTA or other type of survey. This is typically paid for by the seller.
Schedule B-2: This section lists the necessary exceptions to title. The items not being insured by the title company which include seven standard exceptions, taxes, and further burdens such as covenants, conditions, and restrictions (CC&R’s); easements, and/or mineral reservations.
The seven standard exceptions are found on every title commitment but may be deleted or revised on the policy. If buyers have questions regarding specific exceptions, they should consult a real estate attorney.
A dash-2 or dash-3 will be found at the end of a commitment if the commitment has been revised multiple times. Land Title will underline the information that has changed in all second and subsequent commitments to make it easier to identify the information that has been updated.
Linked Commitment Delivery (LCD)
Land Title offers electronic delivery of a commitment via its Linked Commitment Delivery (LCD) system. The benefits of LCD include:
- Commitment summary is displayed in the body of the email: pdf of the full commitment is attached to the email.
- Embedded links to all commitment documents including requirements, exceptions, plat maps and tax certificates.
- 24-month chain of title with links to the documents.
- Changes to the prior commitment are underlined and highlighted.
For more information on how to read a title commitment, contact your Land Title sales representative or closer.