Title Commitment Definition: Everything You Need to Know
Title commitment definition, also known as the title binder, refers to the promise of a title company to issue an insurance policy for a property after closing. 3 min read
Title commitment definition, also known as the title binder, refers to the promise of a title company to issue an insurance policy for a property after closing.
The title commitment covers the same terms, conditions, and exclusions found in a typical insurance policy. It is a document that specifies the details of what a title insurance policy will cover and exclude.
Advantages of the Title Commitment
A title commitment informs the buyer of any outstanding attributes of the building, such as an existing heir who has a claim to the property or a community association that constitutes a ruling body.
Is the Buyer Allowed to Review the Commitment?
The buyer can review the commitment and contact the title company, their agent, or a real estate attorney for clarification on some of the provisions. However, the buyer has a limited number of days to inform the seller about any unacceptable terms in the commitment.
What Is Title Insurance?
Title insurance is an insurance policy that protects a property buyer against any unforeseen hazards associated with a property's title. This is unlike other insurance policies that are bought for future purposes. Title insurance requires a one-time payment and is meant to protect against any loss due to hazards or defects in a property before insuring.
What Are the Hidden Hazards That May Occur?
Some of the hidden hazards that may occur include the following:
- The deed may be forged.
- Heirs might have claims to the property.
- There could be errors in the public records.
- Transfer documents were executed under a false or expired power of attorney.
What Will the Title Company Insure?
The title company buys an insurance policy to cover unforeseen surprises that can surface later.
What Will the Title Company Do Before It Issues the Title Commitment?
Before the issuance of the commitment, the title company investigates the public records of the property and excludes any item that may prevent insurance coverage. The excluded items are known as exceptions. The title company cannot help you if any of the exceptions creates a problem during your ownership of the property.
What Will the Title Company Do When It Issues Insurance?
When a title company issues insurance, it will provide a general list of standard exceptions that apply to all properties. It will also list exceptions for certain items identified during its pre-issuance research that are specific to the property being issued title insurance.
What Are Examples of Exclusions?
Exclusions can include:
- Any legislation or governmental rule that affects the use of the property
- Any governmental police power, except where recorded
- Rights of eminent domain, except where recorded
- Claims due to creditors' rights or bankruptcy laws
- Defects, adverse claims, liens, encumbrances, and other issues the buyer agrees to
Should You Be Concerned About Every Exception a Title Company Lists in Your Policy?
You don't have to be concerned about every exception listed by a title insurance company. Exceptions, such as an easement allowing a water company to check the meter or carry out repair work, is a common exception, as long as the company doesn't infringe on your rights.
Advantages of Exceptions
Exceptions can help you identify things that should be changed in the property before closing. For example, say the title company excluded certain items identified on a survey of the property. On close observation, you discovered the seller erected a fence on the neighbor's property. If the fence is not moved before closing, you will be responsible for moving the fence should your neighbor make such a demand, and the title company won't be able to help you.
Exceptions can also let you know about certain expenses you will be paying on the property, such as owner association dues.
Disadvantages of Exceptions
Certain exceptions may affect your use or ownership of the property or include unfavorable conditions. For example, if you intend to build a dog kennel where the garden currently is, an easement on the property might prevent this.
Should You Hire an Attorney?
It's essential for your or your attorney to take a critical look at the provisions of the title commitment, understand the exceptions, and identify anything you find unacceptable.
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