Featured News 2013 Title Insurance Commitments: What You Need to Know

Title Insurance Commitments: What You Need to Know

You have signed a purchase and sale agreement for a new house: escrow is closing…and you are probably still facing a mountain of paperwork. This is the title commitment, title binder, or preliminary title report. Whatever it is called, there are general guidelines that may be able to help you understand what you need to look for, and what you need to understand in this packet of documents.

The title commitment is something that comes from the title company. It means that the company will provide a title insurance policy once escrow has closed. It will tell you the terms and conditions, as well as the exclusions that will appear on the official title insurance policy. This insurance is almost always necessary, as stated in the usual purchase and sale agreement, which tells the seller to give the buyer title insurance. What this insurance should do is help you if hidden problems arise that affect your title to the property.

Would anything happen if you do not double check the title commitment? Hopefully not, but there are cases when nasty surprises could arise from not knowing what is covered in your policy. Title policy only covers problems that you could not have known about when you purchased the house. The insurance company will first look through the property's history to find previous problems, and it calls these "exceptions". If you have issue with an exception that comes your way, then you cannot get coverage from your title policy. You could have dealt with the problem before closing if you had looked over your exceptions in the title commitment.

For instance, a couple months after you have settled into your new property, a strange person could show up at your doorstep and notify you that they will be keeping their stuffed animal collection in your shed, because they have an easement on the property. You would understandably be shocked, but when you call the title insurance, they will probably tell you that they cannot help you with this issue; it is an exception. Easements are nearly always given as an exception on the title commitment and policy. In this case, then, you would have to address matters by yourself.

Now some exceptions may only pertain to your property, while others will affect every property. Many exceptions, whatever the type, will not be a source of trouble. Perhaps an easement entails that a power company can have wire running above your property. This type of exception is pretty typical, and it probably will not get in your way.

But what if you want to build a storage shed, only to find out that someone else has access to it and is going to store hay in there? This is the kind of exception you would have wanted to know about before closing, from reading the title insurance commitment.

Other exceptions may outline things you have to pay for, such as home owner association dues. The title commitment might also inform you that you have to take out the fence in your backyard because it encroaches on the neighbor's land; you have to pay to push the fence back unless you bring up the issue before closing.

These are just some of the reasons that you need to actually go over and study your title commitment. A real estate attorney can help you recognize the implications of the exceptions on your policy, and if any of them necessitate that something be solved before closing. Usually the purchase agreement will say that the sale is only final if the buyer agrees with the title commitment, and if problems in it have first been solved. With the help of a real estate lawyer, you can eliminate a lot of unwelcome surprises before they ever develop.

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