What is a Title Commitment/Title Insurance Policy?

If you're purchasing a home, learn more about why you need Title Insurance & what a Title Commitment is.

As a buyer, you typically bear "the burden of clearing title" in most circumstances. This means that it is usually your responsibility to hire a title company to conduct a title search on the property you are purchasing & ultimately, to provide you with an "unclouded" title.

A title company will research the ownership history of the property along with any outstanding liens, judgments, encumbrances, etc. to provide you with an "unclouded"/"clear" title.

The document that ensures you have a "clear" title is also called a Title Policy or Title Insurance. A Title Commitment is usually provided alongside a Title Insurance Policy & spells out the conditions on which the title company will provide insurance on the property. Both of these documents are provided by the title company once the title search is completed, while you are under contract.

The title company will sometimes provide a title commitment with stipulations that remain unmet and need to be met before closing can occur. This will mean the commitment is subject to certain requirements being met.

For example, A title commitment is issued subject to the signing of certain affidavits by all parties at closing. 

Or for example, A title commitment is issued subject to the payment of a late tax bill by the seller at closing.

What does that mean in layman's terms? The title company is doing the research to ensure you own the property "free and clear". Meaning, your ownership is undisputed & there are no other parties who could claim to own any portion or percentage of the property at the time of your purchase. 

For example: You are purchasing a home that is owned by an older couple who never paid last year's property taxes and one of the owners owes back child support. This probably appears on title as a tax lien against the home for unpaid taxes, as well as an additional judgment against the individual who owes child support.

The title company would ask for payment of all amounts due before (or at) closing. They would also require that all necessary individuals sign any appropriate documents to state these issues have been paid & resolved. Lastly, the title company would record all necessary documents with the corresponding governing bodies (such as the county).

Since some of these issues may not be resolved until closing funds are transferred, the title company will issue a commitment to you & the lender promising they will be resolved. The insurance covers all parties in the case that some unforeseen event occurred such as someone at the county not properly recording the release of these issues.

The title insurance also protects your current lender against any form of financial loss due to any title defects. This is why it is required for a buyer to purchase a Title Policy & for the title company to provide a Title Commitment in order to successfully close on the loan.

The title insurance policy protects you against claims of ownership, which is why it is always important to keep this documentation for the duration of your ownership of the property.

For example: You are attempting to refinance your mortgage & borrow additional money against the equity you have in the home. When you are refinancing, the lender informs you that there is an unpaid tax bill that existed prior to your ownership of the home, which you are not responsible to pay. You provide the lender with your Title Insurance Policy & they are able to overlook this prior expense. This insurance protects both you & the lender, since you are able to prove that at the time of purchase you owned the home "out-right" without any "cloud on title".

What does this mean for you? Keep these documents for the duration of your ownership. Should anything come up which disputes your ownership (such as fees owed, or transfer of the property) - this is your best protection!