If you are buying a house or other real estate, you will probably receive a document called a “Title Commitment.” This is a commitment by a title insurance company to issue a policy of title insurance. The commitment will include requirements that must be satisfied before the policy is issued. These usually include matters such as payment of the purchase price and delivery of a deed signed by the seller. Other requirements specific to the particular transaction are included in almost every commitment.
As a buyer, what should you look for in the title commitment?
First, look on Schedule A to determine what type of policy is to be issued, who the insured will be, and the policy amount. There are several types of title insurance policies. One is an owner’s policy, and that is what most purchasers will receive. Another common type of policy is a lender’s policy, which protects only the interest of a mortgage lender, and which does not protect the owner. The policy amount is almost always the amount of the purchase price. The policy amount is the maximum that will be paid in the event of a loss, even if improvements are later constructed on the property. It is important to consider purchasing a new title insurance policy after a new home has been constructed on previously unimproved land.
The commitment will include a list of “Exceptions.” Standard exceptions appear in every title insurance commitment, and may include claims of parties other than the insured who are in possession of the property, unrecorded easements, conflicts and boundary lines, issues that a survey would disclose, and mechanics’ and materialman’s liens which have not yet been filed. The commitment will also except from coverage matters that are specific to the particular transaction.
One of the most important exceptions is referred to as the “gap” exception. The policy will not cover anything that happens between the date of the commitment and the date of the closing. Sometimes a commitment is issued weeks or even months before the closing. A buyer should purchase a “gap endorsement,” which will cover defects that occur during this “gap.”
Another important exception is the survey exception. Unless the purchaser pays for a “survey endorsement,” the policy will not cover defects in any survey. For example, if a survey would reveal an encroachment or a boundary line issue, but a survey endorsement has not been purchased, the title insurance policy will not cover any resulting loss.
Some title insurance policies do not include coverage for mineral, oil or gas interests. Previous conveyances may have reserved these interests, so a buyer may not receive the right to extract minerals, oil or gas from the property, and another party may have the right to do so. This can affect the owner of the surface interest. A buyer should require that an exception for minerals, oil and gas be removed from the commitment.
Some title insurance policies do not cover judgments or other proceedings of bankruptcy courts or federal courts. A buyer should require the title insurer to remove exceptions for these matters from the commitment if they appear.
Sometimes a title insurance policy will except from coverage any Uniform Commercial Code (UCC) filings. While most of these filings concern personal property and not real estate, there are some UCC filings that affect real property interests, so this exception should be removed.
Almost all title insurance policies except from coverage losses that occur if the insured property does not have legally enforceable access to a public right of way. This is a matter that should be revealed by an accurate survey. The buyer should confirm that a survey identifying right of way access has been received, and that it is covered by a survey endorsement to the title insurance policy. The survey should be certified by the surveyor to the buyer because otherwise the buyer will have no recourse for inaccuracies in the survey.
A careful buyer of real estate should secure the services of a licensed real estate agent, who can advise about many of these issues. Most importantly, for property in this state, a buyer should engage the services of an Arkansas attorney experienced in real estate law to review the real estate contract, the title insurance commitment, and the closing statement which will be prepared by the closing agent. For property in Garland County, and for Hot Springs real estate, an Arkansas/Hot Springs real estate attorney should be engaged. By doing so, issues concerning the title insurance commitment and the real estate closing will be considered and resolved before it is too late.
By: Carl A. Crow, Jr.