Title Commitment in Commercial Real Estate

Among the various documents that play a crucial role in a smooth real estate transaction, a title commitment is one of the most important. A title commitment, also referred to as a preliminary title report or title binder, is a document issued by a title company after the title search and before a title insurance policy is issued. Let’s explore the purpose of a title commitment and its components.

What is it?

A title commitment reports the findings of an initial title search. It outlines the terms, conditions and exclusions covered in the title insurance policy. This document also serves as a guarantee that the property being purchased is eligible for insurance after closing. A title commitment contains much of the same information that a title insurance policy does, except it is not legally binding.  

Components of a Title Commitment

Schedule A

This section provides a snapshot of the essential information regarding the property and the title insurance coverage including:

  • Effective date: The date the property’s title was examined.
  • Proposed insured: The name of the party, typically the buyer or the lender, that the title insurance policy will protect.
  • Amount of insurance: Either the purchase price or the loan amount, depending on the type of policy.
  • Policy or commitment number: A unique identifier for the title commitment.
  • Land description: A detailed legal description of the property, including boundaries, lot numbers and any other unique characteristics.
  • Estate of interest: Specifies the type of ownership interest such as fee simple, leasehold, joint tenancy, etc.
  • Name of insurer: The name of the title insurance company that will issue the title insurance.

Schedule B-I

This section typically includes a list of requirements that must be satisfied before the title company will issue the title insurance policy. These requirements aim to ensure that the property’s title is clear and marketable before the title insurance policy is issued, reducing the risk for the buyer and insurer. The parties involved in the transaction need to address these requirements to proceed with the closing of the real estate deal. A few requirements that are typically included in this section are:

  • Payment of liens and encumbrances: The seller must clear any existing liens, mortgages, or encumbrances on the property before the title insurance policy is issued.
  • Completion of specific documents: Certain documents, such as deeds or affidavits, must be completed and recorded.
  • Delivery of title documents: The seller needs to provide all necessary title documents to facilitate the transfer of ownership.
  • Resolution of legal issues: If there are any pending legal issues related to the property, Schedule B-I may require their resolution before the title company will issue the title insurance policy.

Schedule B-II

This section provides the list of exceptions or exclusions to the title insurance coverage. These are issues discovered during the title examination that will not be covered by the title insurance policy. Buyers may need to address these exceptions or negotiate with the seller to resolve them before proceeding with the transaction. A few common exceptions and exclusions are:

  • Liens and encumbrances: Any existing liens, mortgages or encumbrances on the property.
  • Easements: Any easements or rights-of-way that affect the property.
  • Covenants and restrictions: Any restrictive covenants or limitations on the use of the property.
  • Outstanding leases: Any leases or tenancy agreements affecting the property.
  • Rights of third parties: Rights or claims by third parties.
  • Boundary disputes: Any ongoing or potential boundary disputes.
  • Unrecorded documents: Documents that may affect the property but are not recorded in public records.

Why is it important?

So why is the title commitment important? Because it alerts the buyer and seller to any issues that could affect the title to the property, exceptions that will not be covered by the title insurance policy and what conditions must be met before closing. However, the title commitment and subsequent title policy do not guarantee that all issues related to the property are known or that there will not be issues related to the property in the future.

The title commitment’s role in identifying and addressing potential title issues is instrumental in providing peace of mind to buyers, sellers, lenders and investors during a commercial real estate transaction. As a crucial step in due diligence, understanding and appreciating the significance of a title commitment is essential. If you are looking for assistance with your next real estate purchase, contact Landmark Title today. We can ensure a thorough title search, along with a smooth and timely closing.