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San Antonio Real Estate

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Title Commitment vs. Title Policy – Which One is Which?

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Title Commitment and Title Policy

Title Insurance

Often clients will ask me to explain the difference between title commitments and title policy. An easy way I’’ve found is to tell them to think of the title commitment as an offer to issue a title policy along with an overview of the important parts of the policy in question. Of significance to point out to clients is that a commitment is usually not an all-encompassing search back to the original owner (insurance companies manage this risk internally). Consequently, a “clean” commitment does not always ensure that the buyer will never have title problems, only that he will have coverage if problems do arise. That’’s why it’’s important to make sure you are working with a reputable title company who will likely still be in business if a problem does arise.

Additionally I take time to highlight the four title commitment sections for clients called “schedules” which provide information in a standard format for ease of understanding.

Schedule “A” Covers basic information about the transaction such as the effective date; policy coverage amount; the legal name of the current record title owner and a legal description of the property. Problems will arise if this information is incorrect.

Schedule “B ” Contains a pre-printed list of standard exceptions that the title policy will not cover. Most importantly it will also list matters specific to the transaction that could impact the usefulness of the property, ie restrictive covenants, easements, and rights-of-way.

Schedule C Considered the heart of the commitment as it lists the requirements that must be satisfied for the issuance of the title policy. Examples include information on marital status, updated surveys, liens, judgments, lawsuits etc. Generally the seller is responsible for resolving discrepancies identified in Schedule C.

Schedule “D” discloses the total policy premium, along with an explanation of how the premium is divided among the various parties who may be responsible for examining title and issuing the policy.

In order to ensure clients are getting the coverage they expect, I always recommended they discuss any questions they have with real estate attorney.

Who Chooses the Title Company in Texas?

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Who chooses the title company?

Here in San Antonio (and Texas in general), we use title companies to close our transactions when selling and purchasing homes. The purpose of the title company is two-fold; firstly, to manage all the incoming funds and make sure all the appropriate parties receive the correct funds (and there’s a lot of parties – lenders, sellers, agents, insurance companies, surveyors, the tax man…the list can be quite overwhelming), secondly, the title company issues title insurance. Title insurance insures the property is being passed from one party to another without any encumberance. By issuing title insurance on the property, the title company is ensuring that if someone indeed does have a claim to the ownership of the property, they will cover the owners’ loss.

Buyers and sellers can negotiate who will pay for title insurance and also who will be chosen as the title company. There are actually two components to title insurance; the owners’ policy and the lender policy (each one protecting that party from possible claims of ownership of the home). If the seller pays for both portions of title insurance, they may pick the title company without fear of violating RESPA (the Real Estate Settlement and Procedures Act). However, if the seller is not willing to pay for title insurance, the buyer may negotiate to choose a title company and pay for the title policy.

There have been courts that have argued that when the policy is split into its two components (lender and owner) and the seller pays for the owner policy and the buyer pays for the lender policy, that the seller may still choose the title company. However, RESPA does not officially cover this position and the waters remain murky. It is best if the seller avoids any conflicts and a) chooses and pays for the title policy (both owner and lender sides) or b) let’s the buyer choose the title company and pay for their title policy. Often in the MLS a title company is written in as a preferred title company, but although the sellers and their agent might prefer it, as a buyer, you do not have to use their title company if you are paying for your title insurance (no matter what some agents might try and tell you).

In Texas, the cost of title insurance is regulated, so all title companies charge the same fees for the policy. Because of this, it really comes down to service and ability to perform the required tasks with efficiency and flexibility. Most agents work with several different title companies and closers and know who can best fit your personal situation and transaction, so ask your agent when buying or selling your next home who they know can get the job done and make your decision with that in mind.

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