Acquiring title insurance is an integral part of acquiring real property because it insures against financial loss from defects in title and is required by commercial lenders. However, the importance of properly evaluating the title commitment is often overlooked, perhaps because the information contained in the title commitment can be difficult to understand. Your title policy will be issued based upon the title commitment so you should understand all of the information contained in the title commitment. Your real estate agent and lender can assist you in limited amounts, but they are not a substitute for having a knowledgeable and experienced attorney review the title commitment, survey, and loan documents on your behalf.
A title commitment will contain four schedules–A, B, C, and D. Schedule A sets forth, among other things, the type of policy to be issued, the policy amount, the name of the proposed insured, the interest in the land to be covered, the name of the current record owner, and the legal description of the property.
In evaluating Schedule A, you should verify that the policy type is correct (e.g. an owner’s policy), that the amount of coverage is correct (usually the amount of the purchase price for the property), that the name of proposed insured is correct, that the interest in the land to be covered is correct (usually fee simple), that the name of the current owner corresponds with the name of the seller on your contract to purchase the property, and that the legal description on the title commitment corresponds precisely with the legal description of the property on the survey and your contract to purchase the property.
Schedule B sets forth the exceptions from coverage. As such, unless the matters set forth on Schedule B are deleted prior to the issuance of the title insurance policy at closing, the title insurance policy will not cover losses pertaining to any exceptions detailed on Schedule B. There are eight preprinted or standard exceptions that should appear here–(i) restrictive covenants on the property, (ii) survey shortages, (iii) homestead and community property rights, (iv) stream and water rights issues, (v) taxes and assessments, (vi) documents creating the insured’s interest in the land, (vii) construction liens, and (viii) subordinate liens and leases. Depending upon the type of property being acquired and other factors, some of these preprinted exceptions may not be applicable or may be deleted under certain conditions. Aside from preprinted exceptions, other exceptions sometimes appearing on Schedule B include rights of parties in possession (e.g. tenants), oil and gas reservations and leases, and encroachments.
Schedule C sets forth the curative matters that must be satisfied prior to or at closing in order for the title policy to be issued. Schedule C should contain various standard conditions to coverage that relate to the execution and delivery of the deed conveying the property to you, access to the property, payment of the purchase price, and payment of taxes. Schedule C will also disclose the existence of liens of record burdening the property, such as deeds of trust (i.e. mortgages) and mechanics’ liens. Anything on Schedule C that is not satisfied prior to the issuance of the title policy will become an exception to the coverage provided by the title policy. Consequently, it is imperative that you verify all of the matters on Schedule C are addressed at or prior to closing.
Finally, Schedule D provides information pertaining to ownership of the title company and the title insurance premiums.
Hopefully this article will assist you to better understand the information contained in the commitment and its importance. Please feel free to contact us if you have any questions or concerns.