3.28 Commitment

3.28.1

In General

A properly completed title insurance commitment is a formal and legally binding contract to insure title to real property. In some jurisdictions, a commitment is called a binder. Subject to its terms and expiration, the commitment can be relied upon by the insured to obtain a title policy subject only to the exceptions and requirements set out therein.

3.28.2

Forms To Be Used (Commitment)

No title commitment form is to be used except the form printed and approved by the Company for use in the area. State approval to use the form, if necessary, is to be procured and obtained prior to its use.

It should be remembered that title reports and title commitments are different documents, that they encompass distinct degrees of the Company's liability, and that they are not interchangeable - one form should not be used in lieu of the other.

Alterations or modifications in any printed form of the commitment is not permitted unless specifically authorized in writing by the Company. Title reports are only for the benefit of the Company and shall not be sold or given to proposed insureds.

Also, it is not permissible to issue letters or memoranda which may attempt to explain, modify, or expand the coverage given by a commitment form unless provided by the National Legal Department.

3.28.3

Composition Of The Commitment Form

The commitment form is composed of the cover or jacket and the schedules.

The cover or jacket contains the insuring provisions and the conditions and stipulations.

3.28.4

Insuring Provisions Of Commitment

The principal insuring provisions are as follows:

  • The Company is obligated to write a specific policy of title insurance in favor of a named insured, in a specific amount, subject to the requirements and exceptions shown in Schedule B of the commitment (and Schedule C, if any), and further subject to the Conditions and Stipulations thereof.

  • For the commitment to become effective, it is necessary that the identity of the proposed insured and the amount of insurance be inserted in Schedule A thereof.

  • The liability and obligations of the Company shall cease and terminate 180 days from the effective date of the commitment or at the time of issuance of the policy, which ever first occurs.

  • The commitment does not become valid or binding until it bears an authorized signature of the Company.

3.28.5

Conditions And Stipulations Of Commitment

The conditions and stipulations relate to:

  • The meaning of the various terms.
  • The actual knowledge of any defect, lien, encumbrance, adverse claim, etc., acquired by the proposed insured and not disclosed to the Company.
  • The liability of the Company under the commitment.
  • The nature of any proposed insured's action against the Company.

3.28.6

Schedule A - Analysis Of Commitment

Provides for:

  • the insertion of the Company's policy number or the number used for reference by an agent;
  • the reference numbers of the party placing the order, if any. Many lenders or brokers use this method for identifying their files;
  • the hour, minute, second, month, day, and year reflecting the latest available evidence of title used in the preparation of the commitment;
  • extra space for other miscellaneous identifying references, if necessary;
  • the name of the party, other than the owner or proposed insured, who placed the order and requested a copy of the commitment;
  • the name of the person(s) (Company's or Agency's personnel) who should be contacted in connection with any commitment inquiry;
  • the type of policy to be issued, the amount thereof and the names of the proposed insured; and,
  • accommodations needed to be made in order to include a residential, leasehold, construction loan, U.S.A., or another form of policy or policy year.

Because the liability of the Company differs in some respects according to the different policies which are issued, and because not all states use the same policy forms in insuring owners and mortgagees, it is imperative to thoroughly understand the extent of coverage afforded by each type of policy and its year. All of Schedule A must be properly completed. Lack of information is no excuse.
If the information is not furnished or available, the phrase "To Be Agreed Upon" must be typed in the "proposed insured" and in the "amount" blank spaces.

In the event the estate or interest to be insured is not a "Fee Simple," it will be necessary to modify or delete the phrase "Fee Simple" accordingly.

If different estates are to be insured in the same policy, they must be shown properly defined and vested. In addition, if a leasehold estate is to be insured, a leasehold endorsement should be used if that form is approved for use in the state.

Example:

  • "Fee Simple as to Parcel (tract) No. 1"
  • "Easement Estate as to Parcel (tract) No. 2"
  • "Leasehold Estate as to Parcel (tract) No. 3"

It should be remembered that whenever combining in the same policy the insurance of a leasehold estate with any other nonleasehold estate, it is not possible to utilize the leasehold policy. See Leasehold Insurance (11.04).

The record title of the land is vested, as of the date of the commitment, of the land described as follows:

Example:

  • "A as to The Fee Simple"
  • "B as to the Leasehold Estate"
  • the legal description of the property to be insured is inserted in Item 10 (printed No. 4).

This legal description is a direct product of the record chain of title of the real property to be insured, and if in fact insurable is to appear in the instrument creating the estate or interest to be insured and is to be used in the title insurance policy when issued.

3.28.7

Schedule B Of Commitment

Permits the Company to show, as an exception in the policy, any lien, encumbrance, defect or other matter arising subsequent to the effective date of the commitment and prior to the recordation of the instrument to be insured;

Relates to the general, standard, or printed exceptions. In some states, these exceptions vary in accordance with local rules of practice. The standard, general or printed exceptions may either be totally or partially deleted in the policy to be issued.

Deletion of any or all of the exceptions is known as extended coverage. Accordingly, special requirements need to be made and fully complied with. See Extended Coverage (5.32).

3.28.8

Commitment Special Exceptions

Relates to the special or specific exceptions that specifically apply only to a particular parcel of land. These exceptions refer to all the taxes, mortgages, liens, encumbrances, defects and other matters that records show as affecting or afflicting the real property.

Some of these exceptions, upon their full and absolute payment, release, satisfaction, cancellation, etc., will be deleted from the final policy. Others are to remain and will be shown as title exceptions in the respective policies.

It should be noted that, unless specifically obligated by the closing instructions, title insurance companies do not have any duty or obligation to demand or require the payment or satisfaction of any tax, lien, judgment, or charge that affects the title, as long as these items are shown as proper exceptions in the title policy(ies).

Among the items to be contained in the special exceptions, some should more properly be defined as requirements. In some geographical areas, they are contained in a third Schedule, known as Schedule C, in which all the requirements, as properly differentiated from the exceptions, are set forth. In many other areas, exceptions and requirements are shown together in Schedule B.

Note: Continuation sheets are provided in the event that the material runs beyond the space available on either Schedule A or Schedule B.

3.28.9

Commitment For Residential Policy

The ALTA residential title insurance policy is not available in a few states. Check with the National Legal Department for availability.

When issuing a commitment for a residential title insurance policy in a state where that form has been approved, in addition to complying with the general requirements pertaining to the issuance of title commitments, it is necessary to:

  • Modify Paragraph 1 of Schedule A of the commitment in order to show that the form of owner's policy being committed for is the ALTA residential title insurance policy 6/1/87 rather than the ALTA owner's policy 1987 or 1990.

  • Attach an additional Schedule B page requirements for the issuance of the ALTA residential title insurance policy with full undiminished coverage, and the nature of the exceptions which will be shown in the event those requirements are not satisfied or complied with.

3.28.10

Additional Page For The Schedule B Of The Residential Policy

SCHEDULE B PAGE _____

Note: The printed general exceptions appearing at the beginning of this Schedule B do not appear in the ALTA residential title insurance policy. However, as a condition to the issuance of that policy, we must be furnished the following:

  • A recent certificate of survey. If any of the following matters are found to exist, they will be shown as exceptions in the policy.

    Encroachments or improvements over boundary lines or onto easements;

    Easements not shown elsewhere on this Schedule B;

    Violations of restrictions;

    Violations of zoning laws; and,

    Lack of a legal right of access.

    If a current certificate of survey is not furnished, the following exception will appear in the policy:

    "Any matter which would be shown by an accurate, current survey, or disclosed by a personal inspection. You are not insured against the forced removal of any structures on account of such matters."

  • An affidavit executed by the seller(s) stating that no improvements or repairs have been made to the land within the last twelve months. If any improvements or repairs have been made to the land, we must be furnished an affidavit from the seller(s) so stating, and stating that all bills for such improvements or repairs have been paid. Additionally, we must be furnished lien waivers executed by all parties who furnished labor or material used in such improvements or repairs. If we do not receive such information which satisfies us that no mechanic's lien can be filed against the land, the policy will, when issued, contain an exception as follows:

    "Liens, not shown in the public records, for labor and material furnished or improvements on the land in progress or completed within the past ____ months."

If the land described in Schedule A has a two-to-four family structure, the policy will contain an exception to the rights of the parties occupying the units not to be occupied by the insured. If the land described in Schedule A is a condominium unit now occupied by someone other than the seller, the policy will contain an exception to the rights of such occupant.

3.28.11

Amount of Commitment

Title insurance applications or title commitments should be written for a specific amount (usually based on the sales price of the property or land) and not be accepted or issued for an amount less than the actual value of the land or security interest.

A reasonable effort should be made to determine the value of the property or the size of the expected transaction. This should be done at the time an application is presented or prior to the issuance of the commitment.

If the proper information is not furnished, the following procedure must be followed, unless otherwise approved by an Underwriter:

  • The words "To Be Agreed Upon" must be inserted in the space assigned for the amount of the policy to be issued.