In nearly every real estate contract the seller agrees to provide the buyer with title insurance. The title commitment is a promise from title insurance company to issue a title insurance policy after buyer close on the property. The title commitment contains the terms and conditions of the agreement as well as exclusions. The title commitment is created before closing the deal, which means buyer have an opportunity to examine those exclusions and follow up on anything that needs to be addressed, whether it's a lien on the property, an encumbrance of some sort, or any type of title defect that could be rectified. Any exclusion spelled out in the title commitment that leads to an issue, represents a matter that cannot take back to the title insurance company, because it is not covered under the policy.
Components of Title Commitment
Title commitment will contain the terms, conditions, and exclusions covered in the policy. This document is a promise to issue title. Although every title commitment contains items unique to particular transaction, the typical American Land Title Association (ALTA) title commitment covers the following things:
Schedule A
It reflects the information provided to the title department as a result of the purchase contract and a preliminary search of the public records. Schedule A of the title commitment covers the basics of the transaction, such as the name of the person who currently holds title, the property legal description, the name of the proposed insured (buyer), the sales price, and name of lender.
Schedule B
This part of the title commitment is broken into two parts, the 'Requirements' and the 'Exceptions.'
Schedule B-I (Requirements)
Requirements are items that needs to eliminate from the title in order to provide a clear, unencumbered title to the buyer. This section lists all the things that must be addressed prior to or at the closing, such as: Paying off taxes; paying off seller's existing mortgages; releasing liens on the title; and recording the new deed and any new loan documents.
Schedule B-II (Exceptions)
This section covers things the policy will not insure. Examples include: Conditions and Restrictions (CC&Rs); Mineral and water rights; utility and access easements; Homeowner Association Covenants and Restrictions; and Existing Plat restrictions.
Understanding Title Report
It may be possible to confuse between title commitment and title report, so we defined title report in detail. A title report also known as search report, is the result of the title search and is often a section of the title commitment as well as the final title policy that is issued following closing. Title reports typically are not issued during the homebuying transaction and are generally not used during the closing. Instead, they are issued for those who want to know the history of a property and its title. They can be ordered for a number of reasons, if a financial institution needs to know what's going on with a property, or if an heir has recently inherited some property. In short, a title report details the legal and ownership status of a property.
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