I had a client closing last month where the buyer (last-minute) needed a real estate attorney to draft up a document/agreement. The buyer went to the attorney who also said: “Do you want me to look at your Title Insurance Policy?” The buyer said sure. The attorney then started saying things like…”hmm, that isn’t good” and ” oh wow” while taking a pen and striking out items. Keep in mind this was a $1.4M dollar home. The buyer got upset and told the Realtor that the Title Company was ripping him off and not providing proper title insurance coverage. This was all taking place at another place than the closing. After closing, my client was not happy. I had to explain to the client in detail a Title Commitment vs Title Insurance Policy. They are not the same. The attorney was striking out items in the Title Commitment (Schedule B)…not the policy that is sent to the buyer AFTER closing. Once I explained everything the client was fine. She said…“you should write a blog about that on your site, as it could help educate a lot of Realtors!” I agreed with her…so here you go:
A title commitment (aka a preliminary title report) is the commitment to issue a title policy upon closing. The title commitment generally will disclose (and give you copies of) recorded title matters, claims or encumbrances which are found by the title company. The title commitment has one main purpose: to commit the title insurance company to issue a title insurance policy at closing based on the exclusions, exceptions and requirements stated in the title commitment. We are committing to issue a title policy based on our underwriters decision that everything is satisfied with the title and it can be transferred as “marketable title.” There are 4 main sections of the title commitment…Schedules A, B, C, D.
Schedule A Covers basic information about the transaction such as the effective date; policy coverage amount; the legal name of the current record title owner and a legal description of the property. Problems will arise if this information is incorrect.
Schedule B Contains a pre-printed list of standard exceptions that the title policy will not cover. Most importantly it will also list matters specific to the transaction that could impact the usefulness of the property, such as restrictive covenants, easements, etc.
Schedule C This is considered the heart of the title commitment as it lists the requirements that must be satisfied for the issuance of the title policy. This is information about marital status, updated surveys, liens, judgments, lawsuits etc. In most cases seller is responsible for resolving issues identified in Schedule C.
Schedule D Discloses the total policy premium (money), along with an explanation of how the premium is divided among the various parties who may be responsible for examining title and issuing the policy.
Title Insurance Policy
When it comes to a Title Commitment vs Title Insurance Policy, the one major difference is the commitment is issued BEFORE closing and all items in the Schedules must be satisfied. After the closing occurs, THEN the Title Insurance Policy is provided to the buyer(s). So what is Title Insurance?
Title Insurance protects and/or indemnified a home/property purchaser against any loss resulting from title defects, whether these defects are known or unknown at the time of the sale or refinance. Here are some of the basic items that protects/covers the homeowner:
- Mechanic’s Lien Coverage
- Fraud/Forgery (Deed not properly recorded)
- Defective Recordings
- Third Party Claims (against Title)
- Policy insures anyone who inherits the property from you
- Prior recorded liens not disclosed in the Title Policy
These are the major ticket items.
The Title Insurance Policy is underwritten by a Title Insurance Underwriting company, like Stewart Title. We are the 3rd largest Title Underwriter in the United States. Keep in mind that Title Companies are providing Insurance by insuring risk. We must have everything satisfied from the title commitment and underwriter before the real insurance policy is provided.
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I meet with Realtors/Lenders everyday and many of them still struggle to fully understand what it is their buyers are paying for about Title Insurance and how it differs from the initial commitment we send out. I hope that you use this blog/video as something helpful to better educate your buyer clients when they are purchasing a home…and hopefully using Stewart Title! If you need a NEW Title Company relationship, take a moment and fill out the form below!
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