This is a two-part article. This month, we will go over the basic sections of a Title Commitment and define each to give you a better understanding of what a Title Commitment contains. Next month’s article will go over each section in more detail and suggest items to look for in each section. If you have ever bought or sold real estate in Arizona the chances are pretty good that you have received a copy of a Title Commitment. If you have never bought or sold real estate the Title Commitment may seem a little overwhelming with its numerous pages of legal disclosures, coverage requirements and exceptions or exclusions. Basically, a Title Commitment is an agreement to insure between the Title Insurance Company’s underwriter and the Buyer, Seller and Lender on a real estate transaction.
Let’s get started with our dissection. Keep in mind that different title insurance companies may use a different format, however, Title Commitments are all similar in the basic information provided. This article uses a Title Commitment issued by Chicago Title Agency, Inc. for reference. The first few pages of the Title Commitment, as well as the last few pages, are called the “Policy Jacket”. The policy jacket is where all of the legal terms are defined, the title insurance company’s rights, limitations are disclosed, and blanket exceptions are disclosed. Blanket exceptions are items that are not able to be insured with the type of policy being requested without the addition of specific endorsement to the policy for an extra fee and are not property specific. Title insurance is similar to other types of insurance in that there are different levels of coverage that can be issued, as well as additional endorsements (or riders), that can be added to expand the coverage. The difference between Title Insurance and other types of insurance, such as hazard insurance, car insurance or health insurance is that premiums (fees) on a Title Insurance policy are collected once for the time period that you own the property, whereas other types of insurance are collected on a monthly, semi-annual or annual basis.
The next section of a Title Commitment is usually titled “Schedule A”. Schedule A is also a disclosure section. In this section the date that the chain of title (history of all recorded documents on a specific property) was examined. The Title Commitment is effective from this date, also called the “Commitment Date”. Any documents, relevant to issuing a Title Insurance Policy, on or prior to the Commitment Date will be listed in Schedule A, B part I or B part II. Schedule A also discloses the type(s) of policy(s) that is/are being requested for a specific transaction and the amount of coverage that will be provided for each policy on the Title Policy. Next is the current owner’s estate or interest in the land. Followed by the current owner’s name and vesting from the last recorded conveyance deed of record.
Exhibit “A” to Schedule A is the legal description for the property. The legal description defines how the specific piece of property is described to be able to be located in the government office of the State and County of the property. In Arizona, that office is the Recorder’s office for the specific County in which the property is located. “Schedule B, Part I – Requirements” is the section that lists the requirements that must be met before the Title Insurance underwriter is willing to issue the requested Title Insurance Policy for the specific property. The section is where the term “Clearing the Title Commitment” comes from. Escrow works with the Buyer, Seller, Lender, government agencies and any other individual listed in Schedule B, Part I to satisfy all of the requirements listed by the underwriter. Once all of the requirements are satisfied the file is able to close without any additional exceptions being added to the excluded coverage section for the Title Policy.
“Schedule B, Part II – Exceptions” lists all items that the Title Insurance Policy does not provide coverage for in regards to the specific property. If the new homeowner or lender were to have an issue with any of these items and submit a claim, most likely the claim would be denied as “not covered”. When reviewing a Title Commitment stop and take a little extra time on this section. Normally any HOA CC&R’s are listed in this section. However, just because a property doesn’t have an HOA doesn’t mean that there are no CC&R’s recorded against the property limiting its use. This is also the section to review to see if a mobile home is affixed to the land and if the mobile that is on the property is the one that was affixed.
Next month we will cover a little more in detail each section of the Title Commitment and define more of the terms used to dissect each section. Should you have any questions please contact your favorite Title Company/Escrow Officer. If you don’t have a favorite, please contact Jill Bright (firstname.lastname@example.org) to find out more about working with Chicago Title.
Written by: Amy Layton (fka Amy Frink) AVP/ Branch Manager/Investor friendly Escrow Officer E: email@example.com P: (480) 675-4984