When you go to a real estate closing, or you’re going about buying property, your contract will always provide (or should provide) that you’re going to get title insurance. And basically title insurance is insurance that says to you, “If you buy this property, you can be assured you have good title, and if you don’t, we will pay up to whatever the title insurance amount is (usually the purchase price) to fix the title problem.”
But there’s a process for issuing this title insurance policy, that involves issuing what’s called a “title insurance commitment,” before you ever get the title insurance policy. And if I explain that process you’ll understand why there’s a commitment. To determine whether you have good title to real estate, you have to go to the public records, and search those records to see if things have been filed that encumber your title:
Code Enforcement Leans
Someone else has a contract on the property and it’s been recorded
All these things show up! So what a title company does, is they have searchers, and they have title plants, and they examine the public records. And they say, “OK you’re buying Lot 4, Lot 20, in the Plymouth Creek Estates subdivision.” So they go and search that lot. And they come back and say, “OK, yes, the person selling it to you has title, but it’s subject to an easement to the power company that goes across the back ten feet, it’s subject to restrictive covenants that say you can’t have hogs and chickens on your property, it’s subject to this, it’s subject to that, it’s subject to this and that.”
Alright? So what they will say is, “We will *commit* to you” (so this is a title insurance commitment), “We will give you a title insurance commitment, that says, ‘Title as of this date is owned by (Owner) subject to the following encumbrances, and we commit to issue a title insurance policy to you once you close and get the deed to the property. And it will be consistent with this title insurance commitment.”
Now, the reason they do that, is they can’t give you a title insurance policy yet, because you don’t own the property. They can only give you a title insurance property by regulation, government regulation, when you own the property and that isn’t going to happen until you go to closing and get the deed. But you and your attorney, you want to know the status of title before you get to that closing. So that’s why you get a title insurance commitment.
Now the reason it has to be a commitment and not the policy, is because they’ll do that search to see what’s on your commitment, or what your property is subject to, and it has to be some time before closing: 10 days, 15 days, 30 days. But in theory, if they do that search, and they give you a commitment dated February 15th, and you don’t close until February 30th, additional encumbrances could be filed between the 15th and the 30th… That’s why they call it a commitment, to give you a title policy, if you get the deed on your closing on February 30th…
(That doesn’t work, there aren’t 30 days in February! February 28th! This year, February 29th!)
A commitment says, “We will give you a policy, with these exceptions and encumbrances, if on February 29th you close and get a deed, but subject to anything that is filed between that gap between our last search and the closing.” Well you might say, “Well what good does this commitment do me, because if something could be filed, somebody who did some construction work could come in and file a mechanic’s lean (or we call it a construction lean) on February 25th! And then I would be stuck, I wouldn’t know about it!”
Well the way you handle that is that before we do a closing, we get what’s called a “title update.” From the date of the commitment to as close as the searchers can get it to the date you’re closing, and they’ll come to the closing agent (who is usually us the attorneys) and say, “There’s been a mechanic’s lean filed, and we won’t close. That’ll all have to be cleared up.” We’ll go to the owner, and we’ll say, “Wait a minute, we got a commitment. Showed title clean. I see a mechanic’s lean was filed on the 25th for $10,000. You got to pay that off or I’m not going to close [or] give you your money. This deal won’t happen.”
They can only give you a title insurance property by regulation, government regulation, when you own the property and that isn’t going to happen until you go to closing and get the deed.
And so, if you understand that process, you can see that a title insurance commitment is sort of a promise to issue title insurance with… this particular status of title for that particular property. And, then, you have to update that. And if at the closing you get your deed and nothing has been filed between the date of the commitment and the closing, then (true to the commitment) a final title insurance policy will be issued shortly after the closing. And that will be actually what is called your title insurance. So, you start with the commitment, you end up with the title insurance policy, and that’s the difference between a title insurance commitment and a title insurance policy.
– Rulon D. Munns is an experienced real estate attorney and managing shareholder of Bogin, Munns & Munns, a full service law firm with offices in Orlando, Clermont, Kissimmee, Orange City, Daytona Beach, Ocala, Melbourne, Gainesville, and Leesburg, Florida. He welcomes questions and comments regarding the above and can be reached at email@example.com.
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