You are about to purchase a house, and in the sea of documents you receive ahead of closing is the commitment for title insurance. The commitment is a contract for a title insurance policy which is issued once and covers (generally undiscovered) matters adversely affecting the property going backwards from its effective date. There is a lot to the document, but if you take it piece by piece, it is straightforward and understandable. It has thorough property-specific information setting out the status of the property and its history. It comes over in four major parts: there is the jacket, Schedule A, the requirements, and the exceptions. Each section has crucial information as set out below:
The title insurance jacket includes the commitment to insure and the conditions of the policy you are to receive per the commitment contract. The jacket explains the covered risks that could affect the property for which you will have insurance coverage (like forgery or fraud), as well as general exclusions from coverage. This section is all standard boilerplate language and does not have property data specific to your transaction.
Schedule A on your title insurance commitment is the who, when, what, where, and how of the commitment contract, and ultimately your policy. In schedule A you will find who the proposed insured is, along with the legal description of the property to be insured (this is what is insured – not the address). The schedule will tell you how much coverage you are getting, and if there is a lender on the transaction, how much coverage there is for the mortgage you are granting them. There is an effective date on Schedule A and it states that the information in the contract is good as of a date near that of the property search (remember coverage is good going backwards). When the transaction closes and the policy is issued pursuant to the commitment, the effective date on the policy will be the date of closing, or the date of deed and mortgage recordation, whichever is later. The later the date here the better for the insured. Finally, schedule A says who owns the property at the time of the commitment and how they own it. Fee simple or Fee is the best type of ownership, which would indicate outright ownership by one individual or entity, and if it is set out as a leasehold or life estate in this field on schedule A (and you were not anticipating that), it is likely time to pump the breaks on your transaction and inquire further.
Schedule B1 – The Requirements
This is where you can see what needs to be done for the insurer to issue your policy and the lender’s policy. On financed transactions, it also generally serves as a nutshell of what needs to be done by the title and escrow entity in order to close the transaction. There is language which states that any items not satisfied from this section by the closing date will become exceptions from coverage, but the reality is that unless the items are satisfied, lenders will not allow the transaction to close. In this section you will find the transfer-deed requirement; mortgages and other encumbrances which need to be paid off; and some of countless other possible transaction-specific matters which need to be addressed to get to the closing table.
Schedule B2 – The Exceptions
Here you will find an itemization of matters which are not covered by your specific policy. If you suffer a loss from a matter which would generally be covered by title insurance, and it is set out in this exception section, you will not be able to make a successful claim for the loss. Some of the most critical coverages you will get from your title insurance are for unknown heirs with a claim to the property and open mortgages or existing liens from someone back in the chain of title. If you see exceptions from coverage for probate matters or old liens and mortgages, your coverage could be significantly diminished and it is worth reaching out to the closing attorney or title company to discuss the exceptions further. The bottom line here is that you do not want to see unexpected (and especially very specific) exceptions from coverage. For example, if you do not get a new survey for the closing, it is to be expected that you will have a broad exception from coverage for undiscovered matters which would be evident were you to have a new survey of the subject property. It is expected to see the covenants, conditions, and restrictions relating to a homeowners’ association as exceptions from coverage. It is not expected that there would be a specific exception for a sewer easement requiring access, running under the swimming pool. When the final policy is issued, the two B schedules merge into one Schedule B, listing the exceptions from coverage.
Finally, there may be endorsements to be issued as a part of the final policies you and your lender will receive, set out in the title commitment as well. Certain endorsements might be required by your lender for additional coverages, and they may be issued to tailor the final policy to your specific transaction. When reviewing your commitment for insurance, ask questions about any matters which are not clear. Title insurance is a valuable one-time purchase and you want to be sure you are getting the most effective coverage you can get. It is also a distillation of the information obtained in the records search of your property and serves as a written history of matters affecting and encumbering the land.
