In this post we’ll explain what title insurance is, and how to read your title commitment. If you’ve just received your title commitment and are wondering how to read it, skip to the second section.
What is Title Insurance
What is this big line item on your home purchase, and why do you need it?
Here’s an official explanation from Austin Title.
What are you supposed to do? This family owned this 25 owners ago. You’ve never even heard of them. And you have no idea if his claim is even legitimate. How is this your problem?
Without title insurance, this would very much be your problem. And that’s why your lender will require title insurance before you close.
Title insurance insures you against these sorts of claims. In most cases, your title insurance will settle things with Uncle Billy Bob, and you won’t have to be involved at all. In rare cases, if this claim results in you actually losing the property (very rare) title insurance will reimburse you, like car insurance when your car gets totaled.
Who pays for it? For resale homes, almost always the seller pays. For brand new homes, most often the buyer pays. It runs a couple thousand bucks, more expensive the higher the value of the home..
During your contract, the title insurance company has several jobs. They hold your earnest money in escrow. They research the title and issue a title commitment. They gather documents from the HOA. They coordinate with the agents and lender to keep the transaction on track. They prepare closing documents. And finally, we’ll sit down with them at the closing table, and they’ll walk you through what you’re signing, and where to put your John Hancock.
Reading Your Title Commitment
During your contract, you’ll receive an important email from title with your title commitment. Your title commitment is the insurance policy discussed above. It lays out the terms of your title insurance, basically what it does and does not cover. Here are some tips on how to read it.
- Schedule A is the business details. It will show who the proposed insurers are, the amount that’s ensuring the lender, and the amount that is ensuring the owner. In short: who is being covered and for what amount.
- Schedule B deals with standard exceptions. For example, your title insurance will not cover losses associated with restrictive covenants (deed restrictions) on file with the county. They also won’t cover your losses if you choose to build a porch over your public utility easement, and the city comes and demolishes it so they can get to the utilities below, for example. Schedule B will also have any judgements against the buyers. If you have a judgement from IRS or for unpaid child support, you won’t be able to close without resolving that.
- Schedule C details the conditions to close, those things that must be paid off before closing can happen. Schedule C has to do with the property itself and encumbrances that the seller has created, things like mortgage liens (common) and mechanics liens (less common). Any liens, unpaid HOA dues and the like need to be paid off at closing.
- Schedule D is a disclosure, showing you how the money from the insurance premium gets split up. Title insurance is regulated by the state, and the price is fixed, so it’s just being disclosed.
I hope this helps! If you have any questions at all after reviewing your title commitment, I’m always happy to review it in more detail with you.