Managing Partner Robert M. Steeg is a regular contributing columnist on real estate for Reuters Legal News and Westlaw Today. His article, “Understand the Title Insurance Commitment Before You Put It In the File,” was published on August 10, 2023. Following is an excerpt, which you can continue reading on Reuters Legal News and Westlaw Today. You can also download a PDF of the article below.
Understand the Title Insurance Commitment Before You Put It In the File
Let’s say that you represent a party in a real estate transaction, such as a real estate agent, lender or buyer. The title insurance company hands you a title insurance commitment for the property involved in your transaction, as part of the due diligence process. Do you just say, “Great, title is good,” and check the box on your checklist under “Title” and move on to the next issue?
Hopefully not. Remember that the title insurance commitment is not the title policy itself. It is a promise to issue the title policy later, subject to certain limitations and restrictions. You need to study those limitations and restrictions before you can be confident that the title is “good.”
This step is easy to overlook or to bypass on the assumption that if the title company is willing to issue a commitment for title insurance, that must mean the title is acceptable. But, like any insurance product, the title insurance commitment gives in some places and takes away in others. You need to know what areas are taken away. Look at it this way: at the stage of the title commitment, the title company is warning you about what is wrong with the title, which the title company will not cover once the policy is issued. That is why it needs careful review, just like the roofing report and the environmental assessment and the soils report.
You don’t have to be a title insurance expert. You just need to know what to look for. This article reviews three basic areas that require attention from parties and their lawyers; they are the “Requirements” and the “Exceptions.” Also, there are “Endorsements” that are available to fill in some of the gaps, so we will discuss those, too.