Chapter 6: The Title Insurance Process
Title Commitment and Preliminary Report
A title commitment, also known as a preliminary title report or preliminary commitment, is a document provided by a title insurance company during the real estate transaction process. Here’s what you need to know about title commitments and preliminary reports:
Purpose: The purpose of a title commitment or preliminary report is to provide an overview of the current state of the property’s title before issuing the final title insurance policy. It outlines the conditions under which the title insurer is willing to issue the policy and identifies any issues or requirements that must be addressed.
Contents: A title commitment or preliminary report typically includes the following information:
Proposed insured: The parties who will be covered by the final title insurance policy, such as the buyer, lender, or both.
Property description: The legal description of the property being insured.
Current ownership: The current owner of the property as reflected in the public records.
Title exceptions: Any liens, encumbrances, or other title defects that will not be covered by the final policy unless resolved.
Requirements: Any conditions or requirements that must be met before the final policy is issued, such as paying off existing liens or obtaining necessary documentation.
Policy amount: The proposed coverage amount for the final title insurance policy.
Review and Examination: The title commitment or preliminary report should be carefully reviewed and examined by the buyer, lender, and their respective attorneys or agents. This allows them to identify any issues or concerns that need to be addressed before closing the transaction.
Title Insurance Commitment Period: The title commitment or preliminary report is usually valid for a specific period, known as the commitment period. During this period, the parties have an opportunity to resolve any title issues or meet the requirements specified in the commitment to obtain the final title insurance policy.
Final Title Insurance Policy: Once all the requirements and conditions specified in the title commitment or preliminary report are satisfied, the title insurance company will issue the final title insurance policy. This policy provides coverage against covered risks and defects in the property’s title.
It’s important to note that the terms and practices regarding title commitments and preliminary reports may vary depending on the jurisdiction and the specific title insurance company. It’s recommended to work with a qualified title professional, such as a title company or real estate attorney, to review and understand the details of the title commitment or preliminary report and address any concerns or requirements before proceeding with the real estate transaction.
Clearing Title Issues
Clearing title issues refers to the process of resolving or eliminating any defects, liens, encumbrances, or other issues that affect the property’s title. Here’s an overview of how title issues can be cleared:
Identify the Issues: The first step is to identify the specific title issues that need to be cleared. This can be done through a thorough examination of the property’s title, which may involve reviewing public records, conducting surveys, or obtaining legal advice.
Review Title Commitment or Preliminary Report: If a title commitment or preliminary report has been issued, review it to understand the specific requirements or conditions that must be met to clear the identified title issues.
Consult with Professionals: Seek guidance from professionals such as title officers, real estate attorneys, or other experts who specialize in resolving title issues. They can provide valuable insights and help navigate the necessary steps to clear the title.
Resolve Liens and Encumbrances: Liens, mortgages, or other encumbrances on the property can be cleared by paying off the outstanding amounts or negotiating with the parties involved to release or remove the claims against the property. This may require satisfying outstanding debts, negotiating settlements, or obtaining lien releases.
Cure Title Defects: Title defects can include issues like incorrect property descriptions, missing or improper documentation, or unresolved legal claims. To cure these defects, you may need to file corrective documents, obtain missing signatures, or resolve legal disputes through litigation or settlement.
Obtain Necessary Documentation: Clearing title issues may require gathering and submitting various documents to address the identified issues. This can include obtaining missing deeds, affidavits, or other supporting documentation.
Court Proceedings: In some cases, resolving complex title issues may involve court proceedings, such as quiet title actions, to establish legal ownership or resolve conflicting claims. This step may require the assistance of an experienced real estate attorney.
Title Insurance: Once the title issues have been cleared, it’s important to obtain a final title insurance policy. This policy provides protection against future claims or challenges to the property’s title.
Clearing title issues can be a complex and time-consuming process. It’s crucial to work closely with professionals who specialize in title matters to ensure that all necessary steps are taken to resolve the issues effectively and obtain a clear and marketable title.
Policy Issuance and Premiums
Title policy issuance and title premiums are important aspects of the title insurance process. Here’s an overview of these topics:
Title Policy Issuance: After all necessary steps have been taken to clear title issues and satisfy the requirements specified in the title commitment or preliminary report, the title insurance company will issue the final title insurance policy. This policy provides coverage against covered risks and defects in the property’s title. The policy is typically issued at the closing of the real estate transaction and protects the insured parties as specified in the policy, such as the property owner and/or the lender.
Title Premiums: Title insurance premiums are the fees paid to obtain title insurance coverage. The premium amount is based on the purchase price or loan amount, depending on the type of policy being issued. The premium is typically a one-time payment made at the time of closing. The cost of the premium can vary depending on factors such as the property’s location, the insurer, and the coverage amount.
Factors Affecting Premiums: Several factors can influence the title insurance premiums, including:
Property Value: The purchase price or the loan amount can impact the premium cost. Higher property values or loan amounts generally result in higher premiums.
Coverage Type: Different policies, such as owner’s title insurance and lender’s title insurance, have separate premium costs.
Endorsements: Additional endorsements or optional coverages added to the policy may increase the premium.
Location: The location of the property can affect the premium due to variations in local regulations, risk factors, or market conditions.
Insurance Company: Different title insurance companies may have varying premium rates, so it’s worth comparing quotes from multiple providers.
It’s important to note that title insurance premiums are a one-time payment made at the closing of the transaction, and the policy provides coverage for as long as the insured party holds an interest in the property. The premium payment is typically included in the closing costs of the real estate transaction.
When obtaining title insurance, it’s advisable to work with a reputable title insurance company and review the policy terms, coverage, and exclusions carefully. Consulting with a title insurance professional or a real estate attorney can help you understand the specific premium costs and coverage details based on your unique circumstances and the requirements of your real estate transaction.
