The importance of reading your commitment to issue title insurance

It’s easy to get lost in the mountains of paperwork when purchasing real estate. One document in that mountain, called the commitment to issue title insurance, is both extremely important and guaranteed to make most folks’ eyes glaze over. A potential buyer of property will receive a commitment to issue title insurance after both buyer and seller have signed the purchase and sale agreement, but before closing. This blog post will help buyers under contract understand the commitment to issue title insurance they receive for the property they are in the process of purchasing.

First, though, by “title,” I mean the legal right to own a particular property.  “Title Insurance” is an insurance policy which protects that right of ownership.

Almost all commitments to issue title insurance and title insurance policies in the US use the American Land Title Association (ALTA) form and are organized the same way:

• Schedule A. This section describes the insurance policy you’re receiving, the property being insured, and other basics of the transaction. Review to ensure this information is accurate and ask questions if anything is confusing or incorrect. Some information may be missing, for example if you’re looking at a preliminary commitment to issue title insurance or the property has not been appraised yet. Ask when you’ll receive an update and double-check the information then. The legal description of the property you’re purchasing will also appear here; legal descriptions can be confusing, so feel free to ask if need it clarified.
• Schedule B. Schedule B is often broken into two sections, Requirements and Exceptions. Usually, Requirements comes first, but occasionally it follows Exceptions.
  • Requirements. Here, the title company lists what steps need to be taken in order for it to issue title insurance and close the sale. In a typical transaction, you may see statements instructing the parties to correctly execute all documents, pay off taxes, liens or mortgages, or verify the legal description.
  • Exceptions. This section is usually broken down into Parts I and II. These list the exceptions to the title insurance coverage, i.e., the things that the title insurance company will not defend your title against.
    • General Exceptions. These are the items that the title company would not insure title against for any property under the chosen insurance policy. Expect to see unrecorded encroachments, easements, and liens, unpatented mining claims, water rights, and other similar exceptions. If you have a question about what these exceptions mean for the property you’re buying, ask the title company or a lawyer.
    • Special Exceptions. If you read nothing else, read the Special Exceptions. The title company will not insure title against matters it discovers in the public record, so here, the title company lists everything it is aware of that may affect your title to or use of the property. You may see dozens of items, including taxes, agreements, covenants, reservations, easements, surveys, deeds of trust, and liens. You should ensure that none of these items will impact your ability to use the property for your intended purpose. Many items, other than taxes, will be listed with a recording number. These days, the recording number is often a hyperlink where you can download the document. If there is no hyperlink, your county or title company can supply the documents to you. Read each document carefully, including any attached maps. If you are concerned about what a particular document means for the property you intend to purchase, ask a lawyer.

The commitment to issue title insurance is an important part of the real estate closing process, but many people overlook it. Do yourself a favor. Pay careful attention to the commitment to issue title insurance and ask a lawyer if you have concerns.