A buyer in a real estate transaction will receive a copy of the title commitment which they must review before closing.
What Is a Title Commitment?
A title commitment, a document that lists details surrounding the property, includes the requirements, exclusions, and exceptions involved in insuring the property. It also serves as a promise to behind issuing title insurance on the property. It’s also a promise to issue title insurance when the stipulations in Section B are met. In the absence of a title commitment, a buyer will have limited information regarding the property’s characteristics, including the existence of a third-party ruling body, such as a condo association, or any right-of-way that may exist on the property.
The title commitment, which is divided into various parts, always includes the following sections:
Schedule A includes the commitment date; the policies that will be issued, the amounts, and proposed insured, as well as the interest in the land and the owner, and the description of the property.
Schedule B, the most important section of the title commitment, includes the requirements, exceptions, and exclusions. The requirements listed in this section must be met in order for title insurance to be issued. If any of the requirements are not met, escrow could be affected. Requirements include the following:
- Tax payments
- Recording the new deed
- Recording loan documents
- Release of liens
- Proof of identity
The exceptions included in this section detail what is not covered under title insurance. If the buyer objects to any of the exceptions, they may request that the title company eliminate them, insure over them, or remove them with a release or affidavit.
The exclusions included in this section include things that the title company will not cover, such as:
- Governmental regulations relating to the use of the property
- Rights of eminent domain
- Claims arising from bankruptcy
HUD-1 Settlement Statement
At closing, a buyer will also receive a HUD-1 Settlement Statement, which lists all charges and credits to the buyer and to the seller in a real estate settlement, or all the charges in a mortgage refinance.
Buyers that applied for a mortgage on or before October 3, 2015, or buyers applying for a reverse mortgage will receive a HUD-1. For transactions that do not involve a seller, such as a refinance loan, the settlement agent may use the shortened HUD-1A form.
Buyers that applied for a mortgage after October 3, 2015 will receive Closing Disclosure form instead of a HUD-1.
Closing Disclosure Form
A Closing Disclosure form provides the specifics of the mortgage loan the buyer has chosen. The form includes the loan terms, the estimated monthly payments, and the fees and costs, known as the closing costs, included in the mortgage.
The lender must provide the buyer with a Closing Disclosure form at least three business days before closing on the mortgage loan so the buyer can compare the final terms and costs to those estimated in the Loan Estimate they received from the lender.
Buyers won’t receive a Closing Disclosure form when applying for a reverse mortgage. For reverse mortgage loans, buyers will receive two forms, a HUD-1 Settlement Statement and a Truth in Lending Disclosure. When applying for a HELOC, a manufactured housing loan that is not secured by real estate, or a loan through homebuyer assistance programs, a buyer will not receive a HUD-1 or a Closing Disclosure, but should receive a Truth-in-Lending Disclosure.
Title Insurance Types
Basic Owner’s Title Insurance
Basic Owner’s Title Insurance protects a homeowner if problems arise with the title that were not disclosed during the title search, and covers any legal fees derived from defending a claim against the title to the property. Basic Owner’s Title Insurance, issued in the amount of the real estate purchase, can be purchased for a one-time fee and is guaranteed for as long as the homeowner or their heirs have an interest in the property. The premium charged varies from state to state, but it is usually 1 percent the purchase price of the property, according to the American Land Title Association (ALTA).
The parameters of a homeowner’s policy also vary from state to state. Basic Owner’s Title Insurance may protect the full value, as well as the equity of the property. In some states, sellers will purchase the owner policy to make good on the title to the buyer. In certain situations, homeowners must purchase the owner policy in addition to the lender’s policy.
The policy will usually cover the following:
- Title to the property
- Incorrect signatures on documents
- Forgery, fraud
- Defective recordation
- Restrictive covenants
- Encumbrances or judgments against the property
A survey endorsement insures the land described in the schedule is the same as the land described in the survey. A survey endorsement can be issued on either the Owner’s or the Mortgagee’s policies. The endorsement can be issued after adequately concluding that in spite of minor language differences in the legal description described in Schedule A of the policy and the survey, the land described in Schedule A and the survey are identical. The endorsement cannot be issued to extend survey coverage for a new construction project without a spot survey.
The title examination is a comprehensive review of all public records that affect the title to the property being purchased. The search will review past deeds, wills, and trusts to ensure the title has been passed correctly to each new owner. The examiner will verify that all prior mortgages, judgments, and other liens have been paid in full.
The underwriter’s and agent’s part of the total insurance premium, which is listed disclosed on the HUD 1100 series, is equal to the sum of the Owner’s Title and Lender’s Title policies. With TILA-RESPA Integrated Disclosures (TRID) rule, the Lender’s Title will be disclosed under B. Services Borrower Did Not Shop For or C. Services Borrower Did Shop for under Loan Costs on page two of the CloD and the Owner’s policy under Section H. If the underwriter and agent’s part of the total insurance title insurance premium is also detailed, it would be a duplication of the fee. The rule does not allow fees outside the columns on the CloD.
Record Notice of Settlement
If you live in a state that requires a notice of settlement in a real estate transaction, when you purchase property, your lawyer will file a notice with the registrar’s office indicating you intend to apply for a mortgage to purchase property, as described in the notice. This process is usually applied to prevent sellers from re-selling the property before a deed is recorded.
Upper Crt / US Patriot Search
After the USA Patriot Act was passed in 2001, title agents were informed of the Specially Designated Nationals (“SDN”) List published by the Office of Foreign Assets Control (“OFAC”), United States Department of Treasury. The title industry must comply with the Patriot Act by performing a search of the list prior to a settlement. Foreign Sanctions Evaders List (“FSE”) are added to the Patriot Name Search in order to comply with Executive Order 13608, which prohibits “Transactions by U.S. persons or within the United States involving FSEs …”1
Others on the list include:
- Foreign Sanctions Evaders (FSE)
- Sectoral Sanctions Identifications (SSI)
- Palestinian Legislative Council (NS-PLC)
- Foreign Financial Institutions Subject to Part 561 (Part 561)
- Non-SDN Iranian Sanctions Act (NS-ISA)
Recording Service Fee – Cash
A cash for delivering deeds, mortgages, releases, etc., at the County/City land records.
Transaction Platform Fee
Transaction Platform’s aid in the mortgage closing process, including loan application completion, qualification document submission, and tracking of the loan closing. Borrowers provide information and will be informed of where they stand in the process and what comes next, eliminating potential obstacles along the way. It also allows lenders to reach settlement faster and improve service to clients and partners.
County Search & Copies
Title Commitments require a search of county records or copies of documents and require the following:
- A description of the document, such as Mortgage, Deed, Lien, Judgment, Affidavit etc.
- List the parties named on the document, such as from John Doe to Bank X.
- If known, indicate the Clerk File Number or Book/Page Number for the document.
- Indicate whether you wish to have the copy certified.
- Include a self-addressed, stamped envelope.
- Indicate the name and telephone number or Internet address of someone to contact in the event the Search & Copy Section has a question.
Cover Sheets are required for all Deed and Land Record documents to be recorded.
Certificate of Good Standing
A short form certificate of good standing is obtained on the closing date in order to advise the lender that the borrower is in good standing as per the certificate of good standing.