Buying a house is a big investment. It is essential to opt for title insurance to protect this investment from title claims that may take away your family’s safe haven.
Before title insurance is issued, your title agency will issue a title commitment.
What is a Title Commitment?
The title commitment is a letter issued that promises or commits the issuance of a title insurance policy after closing. It contains the terms, conditions, and exclusions of the title insurance policy. In addition to this, the title commitment also lists requirements that have to be addressed prior to closing so that the title policy can be issued.
When is Title Commitment Given?
Title commitments are issued before the closing of a real estate transaction. In order to get the Title Commitment, the buyer and seller need to satisfy the items mentioned in the schedule.
The process of tile commitment begins immediately after the order is opened.
The process includes collecting and reviewing recorded matters related to the parties involved.
Parts of Title Commitment
A title commitment has three parts:
This is the first part of the document. It contains basic details like:
- Name of the seller/ the person who currently owns the title,
- Name of the buyer
- Description of the property
- Agreed sales price
- Name of the lender
This part of the title commitment lists out and reviews necessary requirements such as:
- Power of Attorney: If any one of the parties is using a POA, it is mandatory to get a copy of the same before the closing of the review.
- Business Entity: If either of the party, i.e., buyer or seller is a business entity, the signing authority may be asked to verify themselves.
- Deeds of Trust: In case of multiple Deed of Trust, Buyer needs to immediately notify the closer, so that the Deed of Trust from a previous lender or the letter of Indemnity can be released.
- Tax Liens: If Federal tax liens or judgments affects your seller or buyer, do contact the appropriate party to obtain payoff information. if the same showed up due to a common name, either of the party may be asked to supply additional documents to verify their identity.
- Death Certificate: In case of the death of one of the parties, a death certificate needs to be issued in lieu of the other party signing the warranty deed.
- Owner’s policy on vacant land: This policy requires an ALTA Land survey, which is typically paid for by the seller
This section specifically talks about the exception to the title, which means items that are not insured by the title company, such as:
- Taxes and Assessments which are not yet due.
- CC&Rs (Covenants, conditions, and restrictions)
What to look for?
You should look for the following things while reading the Title commitment report:
To understand the adequate rights of the property, you have to look for the seller’s nature of ownership as it will help you to know who is the real owner.
Exceptions – Covenants, Conditions, and Restrictions
CC&Rs are enforced by homeowners’ associations. These are a set of rules, which defines the use of a certain piece of property.
for example, CC&Rs can regulate the type of postbox allowed or whether the seller can turn the property into a business like a hotel, etc.
Third-party interests are quite common and may include the easement given by the owner, which may limit your use of the property.
Why is a Title Commitment important?
A title commitment is important because of the following reasons:
- It contains valuable details about your property, such as legal description or any easements.
- It also lists what is covered and not covered in the title insurance policy.
- The title report disclose all the necessary information about the property, which helps the seller to gain the confidence of the prospective buyers.
- The report reveals the seller’s existing liability on their existing property.
How to clear outstanding liens?
There are numerous ways through which you can remove your outstanding liens:
- Pay off: The easiest and best path is to paying off the lien to the lien holder. After the payment, don’t forget to cross check, whether the lien has been removed or not.
- Negotiation: In case, you are unable to pay the full amount in one go, you can always negotiate with the lien holder for partial payments.
- Dispute: You can even go to court and clear the lien, if you feel the lien is invalid.
- Bankruptcy: You can even file for bankruptcy but this option is only available if the lien is judicial or lien which is imposed for limited period of time.
- Status of limitation: Every state has their own law, which defines the lien validity. You can wait for the status of lien limitation to expire so that you can clear your lien.
Title Commitment is not an ordinary piece of paper, it is a document that contains all the important information about the property, that could affect the deal or transaction. Hence, it is advisable to read the document carefully.
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