Jim Valentine on Real Estate
One of the most important components in a real estate transaction is one that is usually given some of the least attention, title commitment.
Historically, it was called a preliminary title report, but has for the past few years been renamed and repositioned as a title commitment. The inclusion of the word commitment reflects the fact that they are now making a commitment to insure title, not just providing preliminary information.
Title insurance is insurance on your title. It assures you that you are truly buying what you think you are buying. The commitment covers items of record. If it isn’t recorded it isn’t insured. The commitment will show you what they have found of record, what will be exceptions to the title insurance policy.
Read the commitment carefully. If you don’t know what an exception is, ask for a copy of the document that is being referenced as an exception. Ask your agent to help on understanding exceptions and how each applies to you.
Commitments contain a lot of disclaimers as well as the right to change things for the insurance company. Title officers date down the title just before recording so they can find anything recorded at the last minute, i.e., fraudulent last-minute loan that wasn’t in place for the commitment.
Most commitments will show you that the property has CC&Rs, easements, and other things that run with the land that can be important to your happiness, or not, if they affect your intended use of the property.
Your ability to study the title insurance commitment is actually conditioned on the fact that there is nothing that affects your intended use. You will not get insurance on your mineral or water rights even if you know they are intact, they are not insurable.
The part you are most interested in is known as Schedule B, Parts I and II. Part I covers things that aren’t going away, i.e., real property taxes, etc. If there is a change in the lender or buyer/borrower then they must be added to the policy per requirements in Schedule B, Part I.
Schedule B, Part II is where things get good. This is where things are listed that will be exceptions, or that are exceptions that will be removed if cleared to the satisfaction of the company. You might find a judgement of record, a mineral lease, an old deed of trust that wasn’t reconveyed, etc.
This is where you should focus your attention when examining your title. Sometimes old documents hang on in the title. Old CC&Rs can be dicey if they don’t specify an expiration since there is a chance the owners could extend the term of the CC&Rs by a vote.
Hard to argue that one out of a policy but may be worth a try. When you are asking for things to be taken out you are asking for a judgment by the title officer that will be made with the risk vs. return mindset.
What are their chances of having a claim on that item? It will depend on the item and the amount of the risk, price of the subject property. Title claims are rare, but they do happen. It is important that you know what your expectations of the property are and that you are protected in case of a shortfall in the title. Your property is subject to zoning, CC&Rs, and other rules and regulations, but good title is essential before everything else. Without a clear title the rest becomes moot.
Title reports have occasional inaccuracies so read them carefully and make sure that your report is correct. You are focused on one property while the title officer is working many.
In a subdivision with many properties, they have a good base, but if you have a unique property, or one that has not changed hands for a long time it can present a challenge to them. Not a big problem, but it’s worth reviewing what they present to you very carefully to assure you get what you bargained for.
Title is a vital yet often misunderstood component of real estate. Make sure you and your agent read and understand your title commitment. You will be signing that you did and do when you sign your closing papers.
When it comes to choosing professionals to assist you with your Real Estate needs… Experience is Priceless! Jim Valentine, RE/MAX Gold Carson Valley, 775-781-3704.dpwtigers@hotmail.com.