As a homebuyer, finally signing that purchase and sale agreement for a home can be relieving – especially after a tough negotiation. But soon after that sigh of relief, you will get the complex title commitment paperwork. This can be quite overwhelming to a new homeowner or even to experienced homebuyers. If you understand what it is you’re looking for, the title commitment provides crucial information on the property you are about to close on.
What is a title commitment?
Also known as a title binder or preliminary title report, the title commitment is a promise from a title agency to issue title insurance. When you close on a property, agencies like Landmark Title provide title insurance on your land title. Title insurance policies protect homebuyers from unknown issues that could affect a property. Most purchase and sale agreements will require the seller to provide the homebuyer with title insurance. All the insurance policy terms and conditions are in a title commitment. The title commitment is a collection of documents in which a title company outlines the current condition of the land title, the requirements of a marketable title, and the details of the title insurance. Essentially, it creates a safe process for purchasers to close transactions before title companies actually issue the insurance. Learn more about title insurance here.
Key components of title commitment
To prepare for a smooth closing, it is necessary for all parties to look over the commitment. When you are reviewing the document, do not hesitate to reach out to your title agent, lawyer, or real estate agent for any clarification. To better understand the structure of a title commitment, we have outlined the three main components of the document below.
In the first page of the title commitment, you will find the basic facts of the transaction. This includes the date of commitment, issued policies, interest on the land, current owners, and a legal description. You will find both the homeowner policy and the lender policy in this section. Make sure all the information matches the contract with correct spelling. Check the buyer’s names, price, seller information, address, and the legal description.
The second part of a title commitment outlines the requirements that must be fulfilled before the title insurance is issued. Some examples of common requirements are the following items: releases of tax liens, estate documentations, releases of judgments, deeds of trust, and more. Title companies ensure the title is accurately portrayed and that a correct deed is listed once old liens are released. Essentially, the title agency is listing the conditions for their policy. This page has several items to review:
Power of attorney – In the case of a party using Power of Attorney, make sure to deliver a copy of the POA to your closer for review before the closing.
Business entity – When the seller or buyer is a business entity, title companies may ask for signing authority verification.
Multiple deeds of trust – If the title commitment shows two deeds of trust on a property when the seller only has one loan, notify the closer immediately. This can mean that a deed of trust from the previous lender needs to be released.
Federal tax liens – Sometimes, liens may appear in the title commitment that affect the seller or buyer. In these cases, contact the appropriate parties to release those liens.
There are several other requirements that might show up in this section. Contact your title agent or an attorney with any questions.
The third and final section of a title commitment conveys the exclusions and exceptions to the title insurance coverage. There is typically a set of standard exceptions in most policies, but policies might also exclude some taxes or further burdens found on a specific property. Most of the exclusions in title policy are standard. However, some property features might need changes to receive coverage in problematic instances. Because of this, it is imperative to examine the exceptions carefully with your attorney, determine whether any exclusions are a problem for you, and resolve any issues you have before buying the property.
Importance of reviewing title commitment
Reviewing title commitment can save you a lot of trouble and help avoid issues down the road. Title companies only insure against surprise issues that occur later in your home owning journey. If they uncover any items that could affect the title of the property, they will be listed as exclusions in the commitment. It is important for homebuyers to be aware of those exceptions and potential issues with your new property.
Even though title commitment can be stressful to go through, Landmark Title is available to help. Our team of seasoned professionals and title experts know what to look for and what is needed to help ensure a smooth closing process. Contact us today with any questions you have about title insurance and to learn more about our services.