Title commitment: Overview, definition, and example
What is a title commitment?
A title commitment is a document issued by a title insurance company that outlines the terms and conditions under which it is willing to provide title insurance for a property transaction. It serves as a preliminary report, detailing the current status of the property's title, including any existing liens, encumbrances, or other issues that may affect the transfer of ownership. A title commitment is typically issued before a property sale or mortgage loan is finalized, and it provides both the buyer and the lender with assurance that the title to the property is clear, or identifies any issues that need to be addressed before closing.
For example, a title commitment may indicate that the seller holds the legal title to the property but might also reveal a lien from a previous owner that needs to be resolved before the buyer can take possession.
Why is a title commitment important?
A title commitment is important because it helps protect both buyers and lenders by identifying any potential issues with the property's title before the transaction is completed. By providing detailed information on the current ownership status and any outstanding legal claims or interests, the title commitment ensures that the property can be transferred without complications. It also serves as a basis for the title insurance policy, which will cover the buyer or lender against any future claims or disputes regarding the property’s title.
For buyers, a title commitment provides confidence that they will receive clear title to the property. For lenders, it ensures that the property they are financing has no unresolved title issues that could affect their security interest.
Understanding title commitment through an example
Imagine a buyer is purchasing a home and obtains a title commitment from a title insurance company. The commitment reveals that the title is generally clear, but it lists a few minor issues, such as an outstanding property tax lien from a previous owner. The title company explains that the lien will be cleared before the closing, allowing the transaction to proceed smoothly. The title commitment ensures that once the lien is removed, the buyer will receive a clean title to the property.
In another example, a lender is providing financing for a commercial property. The title commitment identifies an easement on the property that allows neighboring landowners to access a utility line. While the easement does not prevent the sale, it is important for the lender to be aware of this encumbrance before finalizing the loan.
An example of a title commitment clause
Here’s how a title commitment clause might appear in a property sale agreement:
“The Seller agrees to provide the Buyer with a title commitment from a reputable title insurance company within 10 business days of the execution of this Agreement. The title commitment shall confirm that the property is free of liens, claims, or other encumbrances, except as noted therein. Any issues identified in the title commitment must be resolved before the closing of the transaction, and the Buyer shall have the right to object to any matters that affect the title.”
Conclusion
A title commitment is a crucial document in property transactions, providing a preliminary assessment of the title’s status and identifying any potential issues that could affect ownership. It helps protect both buyers and lenders by ensuring that the property can be transferred with a clear title or by addressing any problems before closing. By understanding the title commitment and its role in the transaction process, all parties can move forward with confidence in the security of the property title.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.