A quick guide to understanding the title commitment required for your mortgage and how it protects you.

Even in this digital age, there’s a lot of paperwork when you get a mortgage. One document you’ll surely encounter is the title commitment. If you’re a first-time home buyer, you’ve probably never heard of it. Experienced homeowners may have heard of the title commitment, but don’t understand it. In short, title commitment is the first step in getting title insurance.

Let’s take a closer look at title commitment and how it protects you and your lender.

The purpose of title commitment

With every mortgage there is a title search. It’s usually done by a title company, sometimes by an attorney. The purpose of the title search is to look at public records pertaining to the ownership of the property to determine if there might be any future problems.

Once the title company completes the search, they’ll issue a title commitment. This means they promise to issue title insurance.

What is a title commitment?

A title commitment is a disclosure from the title company, stating that the property you’re buying will be able to be insured after you close the sale. The title commitment includes three key parts:

• The coverage in Schedule A, including effective date of the insurance; dollar amount of the policy; who’s insured (for example, the new owner and/or lender); the seller; loan amount; sale price; and legal description of the property to be insured.
• The exceptions in Schedule B-1 that the title insurer won’t cover. This can include covenants, conditions and restrictions; homeowners association by-laws; leases; and recorded easements.
• The requirements in Schedule B-2 are additional actions that must be done before the insurance will be issued. This could include things like recording a new deed; getting a release of a lien; making tax payments; or paying off a mortgage, judgments or loans.

Why title commitment matters to you

Title insurance is designed to protect the buyer and seller, as well as the lender if the sale is being financed. It protects all insured parties in the event of future title defect claims that might arise. Title defects include scenarios like another party claiming ownership; improperly recorded documents; fraud; forgery; liens; easements; encroachments; and any other items specified in the title.

When you read the title commitment, pay close attention to the requirements and the exceptions. Make sure you understand everything. If something is not clear, ask your mortgage loan officer for an explanation. If you object to an exception, the title company may consider covering it with an endorsement.

If the requirements for issuing insurance can’t be met, the home sale may be delayed or even cancelled.

As you review the exceptions, look for anything that might require you to make changes to the property. For example, a fence on a neighbor’s property that would have to be moved. Usually, a purchase agreement is contingent upon the buyer’s review and acceptance of the title commitment. If there’s anything of concern, it’s best to resolve the issue before closing the sale to save yourself from potential hassles and added costs later.

When title insurance goes into effect

Title insurance goes into effect at closing as long as all of the insurer’s requirements have been met.

A one-time premium, usually in the $800-$1,200 range, is paid at closing. Premiums vary by who benefits from the coverage. The lender’s title insurance (paid for by the buyer) depends on the loan amount. The owner’s title insurance issued to the buyer (paid for by the seller) is calculated based on the sales price.

The owner’s title insurance coverage lasts for as long as you own the property. For lenders, the coverage ends when the mortgage is paid off.

If you have questions about title commitments, or home financing in general, please contact a Consumers mortgage loan officer online or call us at 800-991-2221.

Consumers helps more than 1,000 members finance land, first and second homes, and home improvement projects each year. When you need a mortgage or home equity line of credit, call us at 800-991-2221. We’re here to help you get the home of your dreams!