In the days leading up to closing, there are many documents that need to be prepared. As a buyer, you will be asked to review a lot of paperwork to ensure everything is in place for closing. One of the documents presented to you will be a Title Commitment Letter.

At the closing table, buyers will often purchase two types of title insurance. There is a lender’s policy which is required by most banks and mortgage companies to protect their interest in your property up to the amount of the loan. However, the lender’s title insurance will not cover many issues that are covered by the lesser known owner’s title insurance policy. These policies address the homeowner’s liability and exceed the loan amount up to the full value of the property.

Title Commitment Letter

A Title Commitment Letter, also known as “Title Binder” or “Preliminary Title Report,” is similar to a Loan Commitment Letter in that it outlines the terms of service. It’s imperative to review the letter in detail before the closing because it will list important considerations such as:

  • Legal description of the property
  • Sale price
  • Loan amount
  • Name of the Lender / Mortgage Company
  • Buyer(s) name
  • Marital status of the buyer(s)

The letter will also include any issues or situations that the company is still researching to ensure a clear title. Finally, the letter may also list any exceptions the title company is making to the terms of coverage. This is particularly important for buyers to examine in detail before closing.

Title Commitment Exclusions

It’s critical to read the terms in your Title Commitment Letter as soon as you receive it. While most will be straightforward, you need to look out for surprises. Depending on the history of the property or the geographic area, the title company may have restrictions on what they are willing to cover. While some exclusions are standard, such as easement access for utility companies, some exceptions can leave you unprotected during the time you own the property.

Let’s say that your neighbor decides to install a new fence and you notice that they are building 5 feet into your property line. Concerned, you contact your title insurance company only to learn that your policy has an exclusion for property line disputes. If covered, the title insurance company would have handled all research, due diligence, negotiation, and legal action. Without the coverage, you may be a facing an unpleasant and likely costly dispute on your own.

Look Before You Sign

If you are buying property, be sure to review your Title Commitment Letter carefully. It’s typically provided a week or so before closing and it will list everything you need to know about your title insurance policies. If anything seems off, consult your real estate agent and your closing company. Researching options before you buy a policy can save you from unpleasant and costly surprises after you own the property.

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