There comes a point in every purchase transaction, residential or commercial, when a buyer receives a title commitment or ta title report, setting forth the status of title to the property being purchased. This is the moment when we know whether there are unforeseen problems that have to be addressed before closing, or whether we have to delay closing or sometimes, terminate the contract. Generally, buyers don’t see the commitment or leave it to their attorneys to sort through the issues. Frankly, this isn’t the worst practice to take. Buyer’s, developers and investors have plenty to focus on to get to the finish line, whether it is moving, financing, construction issues, leasing or a myriad of other issues and title is technical. There is little that the buyer can do to solve the problems that might arise. But, it isn’t a bad idea to know wat are some of the things to look for in reviewing a commitment.
In a previous post, I have given a complete overview of title insurance (see post HERE). But that was more of a technical look at title insurance. Practically speaking, the review of a title commitment is very simple. A commitment comes in 3 parts.
- Schedule A – This is the cover page of the Commitment. It tells who will be insured (owner and lender), the amount of insurance, who currently owns the property and the estate or interest of the land to be insured. All of this should be checked for accuracy. The legal description of the property to be insured is also referenced and attached on an exhibit. The legal should be compared to prior deeds, policies and surveys.
- Schedule B-1 – This is a “checklist” of items that need to be completed in order to issue the final policy. Most of the items on this schedule will have to be done by the Seller (ie: pay off the existing mortgage, pay outstanding taxes and liens, provide authorizing resolutions). But, some will have to be provided or performed by the Buyer (authorizing resolutions to execute the mortgage, satisfy judgments against the Buyer). Buyer’s attorneys check to see what their clients must provide and make certain that Sellers deliver what they are supposed to.
- Schedule B-2 – This is the meat of the Commitment. It contains all of the exceptions to Buyer’s (and Lender’s) title that will appear on the final policy. Each of the exceptions must be reviewed to determine whether any affect or restrict Buyer’s use, or intended use of the property, create any unforeseen obligations for the Buyer such as assessments or 3rd party lien rights, or create easements or other rights which impact Buyer’s use or enjoyment of the property. Copies of easements should be provided to Buyer’s surveyor to be located on the survey so Buyer can assure that the easements don’t unreasonably interfere. This review of Schedule B-2 can’t be accomplished without reviewing each of the documents referenced on B-2.
No one should simply accept a Title Commitment as presented. Every Commitment should be carefully reviewed and considered. Even matters that seem inconsequential at the time of purchase could have a big impact down the road. It is important to consider whether exceptions are proper for the particular property and whether they could have an adverse impact now or a later date. Resolution of these matters before closing is cheaper, and perhaps at the Seller’s or title company’s cost. Waiting until a problem arises after closing will assure that the cost is on the Buyer.