When you are purchasing a home (or any type of property) the last thing you are thinking about (unless you are a real estate attorney) is the title commitment. The focus is generally on the big ticket items such as purchase price, closing date, and inspection contingencies. However, almost every real estate purchase agreement provides for the issuance of a title insurance policy to the buyer (and buyer’s lender if applicable) and the title commitment is the title company’s promise to issue a title policy to you at closing. So why is the title commitment so important and why should you review it carefully?
In preparing the title commitment, the title company will research the public records and exclude from coverage under the title insurance policy items that affect title to the property. These excluded items are called exceptions. Common examples of exceptions on the title commitment are liens, mortgages and easements. A thorough review of the title commitment by you (or your legal counsel) will allow you to properly assess the state of the title to the property and determine which exceptions must be removed and which exceptions can stay. Absent your review, you will take title to the property subject to those exceptions listed in the title commitment and, if an issue arises in the future, the title company will not provide coverage under the title insurance policy with respect to those items.
The title commitment also serves as a check on a seller’s statements or representations regarding the state of the title of the property. In some cases, a seller may simply be unaware of the exceptions affecting the property. Rely solely on the seller’s statements to your detriment. The title commitment will bring those exceptions to light. Once identified, your purchase agreement should provide a mechanism for the buyer to object to items on the title commitment and have the right to terminate the agreement if the seller refuses to remove any objectionable exceptions such as a mortgage.