One of the many documents buyers receive before purchasing property is the commitment for title insurance or “title commitment” from the title company processing the transaction. When read correctly, title commitments can be an informative resource for buyers as you weigh all aspects of the property.
As you may know, title insurance is a type of indemnity insurance protecting a holder from financial loss sustained because of a defect in the title for the subject property. Title commitments are the title company’s commitment to issue an owner’s and/or lender’s title insurance policy after closing and include basic information about the property, certain conditions that need to be met before closing, and everything of record affecting the property.
Title commitments comprise three (3) basic parts: Schedule A, Schedule B-Part 1, and Schedule B-Part 2.
Schedule A confirms the type and amount of insurance coverage to be issued after closing and identifies some general property information, such as the property’s current owner(s), the instrument(s) by which they acquired title and the legal description of the property.
Schedule B-Part 1 (requirements) lists all requirements that need to be satisfied for the title company to close the transaction and issue a title insurance policy, with only the exceptions from coverage identified in Schedule B-Part 2 of the title commitment. This includes identifying the documents being recorded for this transaction, payment of any property taxes or other municipal assessments due, any unreleased liens that will need to be addressed, and documents and information the title company needs. Not all of these items are for the buyers but also the lender, sellers, and title company.
Schedule B-Part 2 (exceptions) lists all of the specific circumstances and recorded documents that will be exceptions from coverage in the title policy. These will include standard exceptions in every title policy and all recorded rights-of-way, easements, covenants, plats, etc., specifically affecting the subject property. Each document’s impact on the subject property will vary, but Schedule B – Part 2 gives the complete picture and details if and how your property is encumbered by anything.
What Does It Mean To You?
While the entire title commitment can be useful, the two most important parts are the requirements to close listed on Schedule B – Part 1 and the exceptions from coverage listed on Schedule B – Part 2.
Buyers can use Schedule B – Part 1 as a checklist to ensure the group is aware of the information they must provide to the title company leading up to and at closing. It also can be a tool to understand the amount of property tax currently being levied on the property and how much per month buyers can expect to escrow. Another useful piece of information is listing all of the mortgages or other liens currently encumbering the property, which will need to be addressed before closing.
Moving to Schedule B-Part 2, the documents listed as exceptions will include, if applicable, the community or building declaration of covenants and bylaws the property is subject to, the document creating a front foot assessment on the property for a recent public water or sewer connection, and any documents granting rights to others to use or travel over part of your property. Part of buying a new property is buying all of the recorded obligations for that property’s owner. These documents explain all of the terms, benefits, and responsibilities involved.