By Patrick Fogarty
What is a Title Commitment?
A title commitment is a binding document issued by a title insurance company that sets forth the conditions under which the insurer agrees to issue a title insurance policy. It provides details about the property’s legal history, current ownership, and any encumbrances, liens or issues affecting the title. The commitment obligates the title insurance company to defend the buyer against any future claims or defects pertaining to the property’s title, subject to certain conditions and exceptions.
Is a Title Commitment the same as Title Insurance?
While closely related, a title commitment and title insurance are not the same. The title commitment is essentially a precursor to title insurance and outlines what will be covered and what will not be covered under the eventual title insurance policy. Once the conditions stipulated in the title commitment are met and the real estate transaction is finalized, the title insurance policy is then issued to provide long-term protection against future title claims or defects.
To Whom Does the Title Commitment Matter?
Realtors: Realtors have a fiduciary duty to protect their clients’ interests. Knowing the details within the title commitment allows realtors to advise their clients on potential issues and negotiation of favorable terms. By addressing any outstanding title issues early in the process, and working with the title company to clear any issues prior to closing, realtors can help ensure a smoother transaction for their clients.
Buyers: Understanding the title commitment is essential for buyers to know what issues may affect their property ownership rights in the future.
Sellers: Sellers should be aware of the title commitment to address any title issues that could potentially derail the property sales transaction.
Lenders: Financial institutions need to review the title commitment carefully to assess the viability and risks associated with the mortgage loan they are providing.
Attorneys: Legal professionals, such as real estate attorneys, use title commitments to advise their clients accurately on the legalities and potential issues surrounding the property transaction.
Important Items Included in a Title Commitment
Legal Description of the Property: The legal description must be accurate to ensure that the correct property is being insured.
Owner’s Information: Full names and any aliases must be listed to avoid confusion or legal disputes later.
Liens or Encumbrances: Any existing liens, easements, or other encumbrances affecting the property must be detailed.
Exceptions: Shown on Schedule B of the title commitment, exceptions are specific conditions or limitations that the title insurance policy will not cover. Common exceptions include existing liens, easements, and restrictive covenants affecting the property. It is crucial to understand these exceptions as they delineate the boundaries of the title insurance company’s liability.
Failing to understand the exceptions can expose buyers, sellers, and lenders to significant legal and financial risks. Therefore, all parties should carefully review the title commitment and consult with legal professionals to fully understand its scope and limitations.
Title commitments play a pivotal role in the Texas real estate landscape, offering a preview of the title insurance policy and alerting parties to potential issues with the property title. The importance of this document extends beyond the realm of realtors to include buyers, sellers, lenders, and attorneys. Therefore, a thorough understanding of what is included in a title commitment, as well as the implications of its exceptions, is essential for a smooth and legally secure real estate transaction.
If you have any questions or concerns regarding title commitments, don’t hesitate to contact our team at West, Webb, Allbritton, & Gentry.