The Importance of the Title Commitment to a Smooth Closing

A title insurance commitment is an offer by the title company to issue a title insurance policy. It is one of the most important documents in any closing because it provides all parties and their agents with notice of the current state of title and clearly sets out what is covered and not covered in the title insurance policy.

The mortgage lender, seller and the buyer should all be concerned about the quality of the title because the property in question will become security for the mortgage loan and assure the transaction can be completed. The raw material of the title commitment starts with the title search conducted by the title company. It focuses on three main areas: the Chain of Title, Tax Search, and Judgment/Name Search:

The Chain of Title tells the history of ownership, generally derived from public records, detailing who bought and sold the property, and when.

The Tax Search reveals whether taxes are current, past due or unpaid from previous years, and indicates the existence of any special assessments against the land.

The Judgment and Name Search determines whether there are any unsatisfied liens against the property.Since title insurance protects the buyer against loss from unpaid or past due taxes and assessments, each of these areas must be deemed satisfactory before the title insurance commitment is issued.

The title commitment document is divided into several mandatory sections:

Schedule A contains the commitment date, the policies to be issued and the amounts, the proposed insured, the interest in the land and the owner, and a description of the property. Click here to see a sample of that page.

Schedule B contains the requirements, exceptions and exclusions.

Schedule B requirements – such as proof of identity, deed recording, and/or release of liens – must be met in order for title insurance to be issued. Click here to see a sample of those pages.

Schedule B exceptions are any title “issues” that are exceptions from coverage. That is, the title company will not insure for them. They can include such items as covenants, conditions, and restrictions (CC&Rs), easements (utility or access) and/or mineral rights and reservations. Click here to see a sample of that page.

Schedule B exclusions – including such things as right of eminent domain or government regulations relating to the use of the property – are also things the title company will not cover.While the title commitment is a crucial part of the closing process, the title company is there to provide all parties and their agents with notice of the current state of title. It is the buyer’s responsibility to raise any objections to protect against future legal challenges.

As a real estate professional, we are able to help you understand the process and prepare you to assist your buyers in reviewing and understanding the importance of title commitment. Knowing what to look for is another way to help save time, facilitate more efficient closings, and build long lasting quality client relationships.

Barbara Pronin is an award-winning writer based in Orange County, Calif. A former news editor with more than 30 years of experience in journalism and corporate communications, she has specialized in real estate topics for over a decade.