Understanding Title
Key Components of Title Commitment and Title Insurance:
I. TITLE COMMITMENT
A title commitment is a document issued by a title insurance company before closing on a real estate transaction. It outlines the conditions under which the title insurance policy will be issued. Essentially, it's a promise from the title company to insure the title if certain conditions are met.
Key components of a title commitment:
Property history: Details the property's ownership history, including liens, encumbrances, and other potential issues.
Schedule B: Outlines potential limitations or encumbrances on the property, such as easements, covenants, mineral rights, encroachments, and zoning restrictions. These items are typically not removed from exceptions to the insurance coverage but are disclosed to the buyer.
Schedule C: Specifies the requirements that must be fulfilled before a clear title can be issued. Common items include liens, judgments, deeds, releases, marital status, probate, property taxes, HOA information, environmental issues, and construction permits.
Removing Items from Schedule C
To remove items from Schedule C and obtain a clear title, the following steps are typically involved:
Identification: The buyer or seller, often with the help of their real estate agent or attorney, reviews Schedule C to identify the required actions.
Resolution: Necessary steps are taken to address the items on Schedule C, such as paying off liens, obtaining releases, or recording documents.
Verification: The title company verifies that all requirements have been met.
Issuance of Clear Title: Once all conditions are satisfied, the title company issues a clear title insurance policy.
II. TITLE POLICY INSURANCE
Once the conditions outlined in the title commitment are met, a title insurance policy is issued. This policy protects the buyer (and often the lender) from financial loss due to title defects that existed before the policy was issued and provides reassurance against unforeseen title problems.
Handling Title Disputes
Title disputes can arise due to various reasons, such as forged documents, undisclosed heirs, or boundary disputes. If a title issue is discovered after closing, the title insurance policy may provide coverage. However, the process can be complex and time-consuming. To handle title disputes, the following steps are generally taken:
Notification: The insured party notifies the title insurance company of the claim.
Investigation: The title company investigates the claim to determine its validity.
Defense or Settlement: The title company may defend the insured's title or settle the claim.
Compensation: If the title company determines that the claim is covered, the insured may receive compensation for losses.
Title Insurance Coverage and Compensation
1. Amount: Title insurance typically covers the purchase price or loan amount. It protects against financial loss due to title defects, including property value, closing costs, and legal fees. Claim amounts are based on the property's value difference with and without the defect. This amount is typically performed by a 3rd party appraiser. Other factors, such as legal fees, may also influence the payout.
2. Coverage: While the title company covers its own legal fees, homeowners may incur costs for personal representation, cover carrying costs like interest, taxes, or insurance during claims. Property owners are responsible for these.
3. Time: Typically, the process can take anywhere from a few weeks to several months for a title company to investigate and pay a title insurance claim can vary significantly. In some cases, particularly complex disputes, it might even extend longer.
It's essential to work closely with a real estate attorney and title company to understand the title commitment, address any exceptions or concerns, and protect your interests throughout the real estate transaction.