Introduction to Title Commitments
Overview
A buyer in a real estate transaction will often request the seller to furnish title insurance, or the buyer may simply elect to purchase such coverage. However, with such a wide array of endorsements and exclusions available, how is the buyer to know what the policy will really cover--or whether the title company is even willing to issue a policy? The answer lies in the title commitment. The commitment is essentially an offer to issue a title policy, and a description of the various conditions, exclusions and exceptions that will be applicable to that particular policy.
It is important to understand that a commitment is typically not a comprehensive title search back to the original government land grant. In fact, the title insurance company will often make a business decision to insure certain risks without even disclosing them. As a result, a "clean" commitment does not necessarily indicate that the buyer will never have title problems--only that he will have coverage if problems do arise. For this reason, a buyer should insist upon working with a reputable underwriter who will likely still be in business should a problem occur some years down the road.
The title company will usually issue the commitment a few weeks after the title company receives the contract and earnest money. Each party to the sale will receive a copy, and the buyer will usually also receive copies of documents evidencing any restrictions, easements, encumbrances, or other exceptions described in the commitment. There is no separate cost for the commitment, although some title companies will charge for making copies of the title records.
The commitment is divided into four sections called "schedules," which are organized to provide information in a relatively standard format. (Other states use different formats.)
Schedule A
Schedule A contains basic information about the transaction. Here you will find the effective date, the proposed policy coverage amount, the name of the current record title owner of the property, and a legal description of the property. There may be a problem if the amount, owner, or legal description varies from the contract terms. Likewise, if the effective date is well before closing, the buyer may wish to request an update to ensure that the information is current.
Schedule B
Next comes Schedule B, which contains a preprinted list of standard exceptions that the title policy will not cover. Because much of this language is "boilerplate," some buyers tend to skim over Schedule B. This is a mistake. In addition to many preprinted terms, Schedule B will also list some matters specific to the transaction, including restrictive covenants, easements and rights-of-way, and mineral reservations. Any one of these items may seriously impair the usefulness of the property, so buyers should carefully review Schedule B and copies of any documents referenced there.
Schedule C
Schedule C is often viewed as the "meat" of the commitment, and with good reason: it lists the requirements that must be satisfied for the issuance of the title policy. For example, the title company may require information regarding the marital status of one of the parties, copies of records from probates or bankruptcies, clarification of homestead status, or a new or updated survey. On Schedule C you will also find descriptions of mortgages, mechanic's liens, tax liens, judgments, lawsuits, assessments, and other such encumbrances affecting the title. The seller is primarily responsible for resolving exceptions noted in Schedule C.
Schedule D
Schedule D discloses basic information regarding ownership of the underwriter and the title company. Schedule D will also show the total policy premium, and a breakdown indicating how the premium is divided among the various parties who may be responsible for examining title and issuing the policy.
Working with a Real Estate Lawyer
Most contracts require the buyer to make written objections within a certain period of time after receiving the commitment, and provide that the buyer waives any objections not timely made. Additionally, the commitment may use unfamiliar terminology, such as a reference to a "T-3" or a "Shortages in Area" exception. To ensure that your rights are preserved and that you are getting the coverage you expect, you should discuss any questions you have with a real estate attorney as far in advance of closing as possible. The Killeen lawyers of Roberts & Roberts combine years of experience in Texas real estate law with a practical understanding of the ins and outs of the land title industry. If we can be of assistance in working with you on your real estate matter, we would be pleased to consult with you.