What is the Title Insurance Commitment Really Saying?

By: Rene’ Rutan, Real Estate Council Relations Manager, Florida ARECS

In 2010, Florida was the last state in the U.S. to approve the American Land Title Association (ALTA) 2006 Title Insurance Forms, which accomplished numerous objectives, one of which was to simplify the legal nature of the language.  Despite these efforts to simplify, title insurance still has its own language so let us help you understand what the title commitment is really saying.

If you’re thinking as a real estate agent you do not need to understand the details of title insurance, you could be correct.  If you regularly partner with real estate attorneys who are representing the buyers and sellers you are guiding then rest easy.  If an attorney is representing the buyer and seller then they are ethically bound to act in the best interest of their client and identify and educate the parties appropriately to ensure they understand the details of the transaction.  If you do not work with an attorney, I encourage you to read on.

Title insurance forms may have been standardized but the details each title commitment contains are unique and must be reviewed closely. A title commitment has three components: Jacket, Schedule A and Schedule B.  The jacket actually includes many of the important details of the title insurance coverage being provided.  Your buyers should receive a complete copy of their title commitment, including the jacket and copies of all the documents referenced, before closing.  Schedule A is pretty simple.  It identifies the parties to the transaction and the property to be insured.  So let’s move on to Schedule B where all the action is. 

Schedule B is broken down into two sections – Part I - Requirements and Part II - Exceptions

Schedule B-I lists those things that must occur in order for the insurance to be given.  It will include boilerplate language requiring that the buyer must have paid for the property and that the premium for the title insurance must be paid.  But it will also list documents that must be prepared and other actions that must be taken before the title insurance underwriter will underwrite the policy.  Here is an example.

AMERICAN LAND TITLE ASSOCIATION COMMITMENT

Schedule B-I
Requirements

All of the following requirements must be met:

  1. The Proposed Insured must notify the Company in writing of the name of any party not referred to in this Commitment who will obtain an interest in the Land or who will make a loan on the Land. The Company may then make additional Requirements or Exceptions.
  2. Pay the agreed amount for the estate or interest to be insured.
  3. Pay the premiums, fees, and charges for the Policy to the Company.
  4. Documents satisfactory to the Company that convey the Title or create the Mortgage to be insured, or both, must be properly authorized, executed, delivered, and recorded in the Public Records.
    1. Warranty Deed from George and Francine White, husband and wife, to Tom Buyer and Tess Buyer, husband and wife.
    2. Mortgage from Tom Buyer and Tess Buyer, husband and wife, to Friendly Bankers, Inc., in the amount of $170,000.00.
  5. Satisfaction of the mortgage from George and Francine White, husband and wife, to Eastern National Bank dated March 13, 2008, and recorded in O.R. Book xxxx, Page xx, Public Records of Miami-Dade County.

This is a nice easy transaction so far.  We just need the deed from the seller to buyer, the buyers’ new mortgage and the satisfaction of the sellers’ mortgage.  Schedule B-1 becomes a handy to-do list for the title company or real estate attorney conducting the closing.  Once they can check-off these items they are ready to close.  Well not so fast!

It’s not just about what has to happen BEFORE closing.  In Schedule B-II the Commitment also tells you the encumbrances or “burdens” the buyer’s title will be subject to.   It’s a preview of what their final owner’s title policy will look like AFTER closing.  Because they are listed here the title company is telling you there is no requirement to address them and that they will be EXCEPTED FROM COVERAGE.  In other words, the buyer has no protection if any item listed becomes an issue.

Let’s look at an example:

AMERICAN LAND TITLE ASSOCIATION COMMITMENT

Schedule B-II
Exceptions

The Policy will not insure against loss or damage resulting from the terms and provisions of any lease or easement identified in Schedule A, and will include the following Exceptions unless cleared to the satisfaction of the Company:

  1. Defects, liens, encumbrances, adverse claims or other matters, if any, created, first appearing in the Public Records or attaching subsequent to the Commitment Date hereof but prior to the date the Proposed Insured acquires for value of record the estate or interest or Mortgage thereon covered by this Commitment.
  2.  
    1. General or special taxes and assessments required to be paid in the year _____ and subsequent years.
    2. Rights or claims of parties in possession not recorded in the Public Records.
    3. Any encroachment, encumbrance, violation, variation or adverse circumstance that would be disclosed by an inspection or an accurate and complete land survey of the Land and inspection of the Land.
    4. Easements or claims of easements not recorded in the Public Records.
    5. Any lien, or right to a lien, for services, labor or material furnished, imposed by law and not recorded in the Public Records.
  3. Any Owner's Policy issued pursuant hereto will contain under Schedule B the following exception: Any adverse ownership claim by the State of Florida by right of sovereignty to any portion of the Land insured hereunder, including submerged, filled and artificially exposed lands, and lands accreted to such lands.
  4. Oil, Gas and Mineral Rights reserved in Warranty Deed recorded in O.R. Book xx, Page xx, Public Records of Miami-Dade County.
  5. All matters contained on the Plat of HAPPY ACRES SECTION 9, as recorded in Plat Book xx, Page xx, Public Records of Miami-Dade County, Florida.
  6. Declaration of Restrictive Covenants, recorded March 31, 1997, in O.R. Book xxxx, Page xx, Public Records of Miami-Dade County, Florida, together with any amendments recorded thereto (hereinafter "Declaration"). Such Declaration does establish and provide without limitation for easements.
  7. Ingress and egress are neither guaranteed nor insured.
  8. Items shown in that survey performed by ABC Surveyors, Inc., Job #123, on November 2, 2019.

We expect to find common exceptions like the Plat, the Declaration of Restrictive Covenants and taxes for the current year.  But what about this one?

  1. Oil, Gas and Mineral Rights reserved in Warranty Deed recorded in O.R. Book xx, Page xx, Public Records of Miami-Dade County.

Many mineral rights reservations permit the holder of the reservation to enter the subject property and mine for minerals while others expressly prohibit “right of entry”.  The title company could have made it a requirement to release the mineral rights reservation. In that scenario this would have been listed on Schedule B-1 and taken care of before closing.  But in this case, they’ve identified it but listed it as an exception.  Maybe it belongs there or maybe it was put there because it was easier.  It’s important to know the difference.  Otherwise your previously happy customer may be calling you in a panic when the backhoes start digging up their backyard.

What about this one?

  1. Ingress and egress are neither guaranteed nor insured.

I cannot tell you how many times I’ve seen this.  It means there is no legal access to the property – unless you commute in a helicopter.  The only way you fix it is to obtain an easement from neighboring property owners or buy a strip of land between the subject property and the nearest public road both of which can cost serious money. 

My point is that just because the title company issued the title commitment does not mean there is not a title issue that should be addressed.  Legitimate title problems that should or could be corrected to ensure that current and future buyers are able to enjoy their property in peace without risk of unexpected litigation costs can be identified as “exceptions” instead of “requirements” to help move a transaction along.  That is not necessarily a bad thing – assuming the buyer is aware and understands what they are getting.

One more and then I promise I’ll stop.

  1. Items shown in that survey performed by ABC Surveyors, Inc., Job #123, on November 2, 2019.

You will almost always see an exception like this on a title commitment unless it’s a condominium and the only way to know what it means is to look at the survey it refers to.  

Let me tell you a true story.  Cash buyer finds the property of her dreams on an island in South Florida.  Seller delivers a copy of the existing survey and other information as required by the contract.  The title company adds an exception for the survey to the title commitment like the one above and moves on.  Buyer has no attorney, tenders the multi-million-dollar purchase price and closes at the non-attorney title company.  It turned out that the survey showed that the improvements on the property exceeded the boundaries of the property and encroached on to the neighboring parcel.  The buyer, who now has an attorney, has spent hundreds of thousands of dollars to resolve the problem.

So back to the original question, what is the title commitment saying?  It is saying look beyond the surface.  The title commitment provides a key status report of the property, so it deserves more than a cursory glance.

If after reading this you have decided you are not interested in learning anymore about title insurance, I don’t blame you!  Find real estate attorneys you like, attorneys you can collaborate with and refer your buyers and sellers to.  They will have someone on their side who can interpret these details and you will be free to sell more real estate knowing that someone else is taking care of these things.

Rene’ Rutan is the Real Estate Council Relations Manager with Attorneys’ Real Estate Councils of Florida, Inc. (“Florida ARECS”) and has over thirty years’ experience in the real estate industry.

The opinions of any particular author are not necessarily the opinions of Attorneys' Real Estate Councils of Florida, Inc., any of the local Real Estate Councils or Attorneys’ Title Fund Services, LLC.