In this month’s article we will go over “Schedule B Part I” aka the “Requirements” section of the Title Commitment. For the purposes of this article we will use a Title Commitment issued by Chicago Title Agency, Inc. for reference. If you’re looking for excitement in a Title Commitment the “Requirements” section is almost always the center of lots of excitement and drama. “What could show up against a property that could possibly create drama?” you may ask? Let’s dissect it and find out.
Each title company formats their requirement section a little differently but putting them in a different order or wording them a little differently. However, all of title companies make the same type of requirements. Here are some basic requirements and possible requirements that you may see, but keep in mind every property is different so the possibilities are almost endless. In the Chicago Title commitment requirement #1 is almost always to “disclose in writing whether there are any other parties not referred to in the commitment that will be obtaining an interest in the Land or who will make a loan on the Land”. Additional parties normally require additional requirements to be added to the title commitment. The #2 requirement is almost always to “pay the agreed amount for the estate or interest to be insured”. Basically, pay the purchase price amount to the other party (and anything else you may have agreed to pay in your purchase contract). The #3 requirement is almost always to “pay the premiums, fees, and charges for the Policy to the Company”. We won’t insure without getting paid first for the coverage, the same as any other insurance company. The #4 requirement is almost always “Documents satisfactory to the Company that convey the Title or create the Mortgage to be insured, or both, must be properly authorized, executed, delivered, and recorded in the Public Records.” This basically means that the Deed and Deed of Trust used in the transaction must be on State acceptable form, the correct forms for the type of conveyance and must be approved by the insurer, signed, the original given to escrow and recorded with the correct County Recorder’s office by escrow. Requirement #5 is a fairly new requirement. It’s more of a notice to all parties that they must disclose if the property will be used to cultivate, distribute, manufacture or sell marijuana. Our underwriters have added this requirement since there is a conflict between Arizona State and Federal laws regarding marijuana. Chicago Title is regulated by both State and Federal entities, so to be compliant with both they have chosen not to insure these types of transactions or properties. The remaining requirements are where the excitement lies.
Here are some examples of typical requirements:
• County taxes
• HOA dues
• Payoff current loan on the property
• City liens
• IRS liens
• Child support liens
• Mechanics liens
• Recording of a death certificate
• Probate – letters of appointment of Personal Representative (probate already completed)
• Record a Warranty Deed to the new owner
• Record a new Deed of Trust for the new Lender
Here are some examples of not so typical requirements:
• Payoff Deed was never recorded for an old Agreement for Sale (requires a Quiet Title action to be done – without the payoff deed of record, your Seller doesn’t technically own the property – yikes!)
• The spouse’s interest in the property was never removed (Ex-husband Joe still has rights to the property – the ex has to be located to sign a deed, or 2nd example- deceased spouse Joe was never removed from title – now his estate must be probated)
• The spouses did not hold title with “right of survivorship” (the surviving spouse must probate the decedents estate)
• The property is held in a life estate (can only be removed by a Deed or a Death Certificate)
• Encroachment of an improvement onto neighboring property (must record a document against the property to disclose)
• A minor in title (beneficiary deed or other type of deed which grants the property to a minor – requires a court appointed custodian to remove the minor prior to 18 years of age or the minor can wait to transfer the property once they are of a majority age)
• A release was never recorded for an old Deed of Trust (may require a Quiet Title Action if the Lender is not able to be located, or the current servicer does not have sufficient evidence to prepare a release).
• Only a portion of the property was transferred to the current owner (I’ve seen ally easements that were missed and require probate if the current owner is deceased).
As you can see, some requirements are easily satisfied or able to be removed from a title commitment, while others require an actual court action of some sort. If you are ever unsure about a requirement on your title commitment please contact your escrow officer for further explanation.
Just because there may be some “drama” happening with the property on the title commitment, doesn’t mean that with a little time and patience the matter(s) can’t be cleared up. Your purchase or sale may not close on time, but everyone will be happy when the property is finally free of the issue and clear title is able to be issued. Luckily we tend to see more properties with sparkling clean title commitments that are actual able to close early than those with serious title issues that require court actions.
Hopefully after dissecting the “Requirements” section you will agree, it is an important section to check out and review. The next time you receive a copy of the Title Commitment take a look to see what is disclosed about your potential new property. Next month we will dissect “Schedule B Part II” aka the Exceptions section. Should you have any questions in regards to the Title Commitment, please contact us and make us your preferred Title Company when investing in real estate!
As the largest title company in the nation and a Fortune 300 company, Chicago Title is committed to protecting you and providing resources to do just that. Please don’t hesitate to contact us with any questions you have!
For other articles, or to read Parts 1-3, please visit: http://www.azreia.org