What's information is in a Title Commitmen?
You've decided to purchase a home and hope to take possession as soon as possible. The terms have been agreed upon and all the financial arrangements have been made. But there's one important detail remaining. Before the transaction can close, a title commitment must be produced.
The most accurate description of title is a bundle of rights in real property. A title commitment is the result of determining from the public record just what these rights are and who owns them. A title commitment is a means of determining that the person who is selling the property really has the right to sell it, and that the buyer is getting all the rights to the property (title) that he or she is paying for.
The commitment is produced by the title company in those jurisdictions where the company maintains offices. In some areas, only practicing attorneys can create a commitment. Regardless of how the commitment is produced, a title insurance policy is purchased to assure the buyer that he or she has purchased a valid title. In those transactions where title insurance is involved, the title company must determine insurability of the title as part of the search process. This leads to the issuance of a title policy, which insures the existence or non-existence of rights to the property.
But what exactly is involved in the process of preparing a title commitment? Chicago Title provides the following step-by-step review:
Chain of Title
This is simply a history of ownership of a particular piece of property, telling who bought it and sold it, and when. The information may be derived from public records - usually a County Clerk's or Recorder's Office-or obtained from title plants privately owned and maintained by title companies. These are great varieties of such plants - index cards, punch cards, tract books, and even sophisticated computerized plants. However, they all contain essentially the same information from which the history of the title may be realized.
This is a search to determine the present status of general real estate taxes against the property. The tax search will reveal if taxes are current, or whether taxes are past due and unpaid from previous years. In addition, the tax search will indicate the existence of any special assessments against the land and, if so, whether or not these assessments are current or past due.
A due and unpaid tax or special assessment is a prior lien or claim on the property, above all others. If a buyer purchases property with unpaid and past due taxes or assessments against it, he or she is likely to find a government body - the village, county, or state - placing the property up for sale to pay those taxes or assessments. A tax search reveals the status of the taxes. Title insurance protects the buyers against loss from unpaid and past due taxes and assessments.
Judgment and Name Search
One of the most important parts of the title process is to determine if there are any unsatisfied judgments against the seller or previous owners, which were in existence while they owned the property. A judgment is a general lien against the debtor's real estate and constitutes security for any money owed under the judgment. The real estate can be sold to satisfy the judgment.
It is extremely important to be sure that a title is not subject to judgments against the seller or previous owners. Title insurance provides this protection. A judgment against a person named Smith may affect the title of a seller named Smith, depending on whether or not they are the same person. So all possible variations of the name must be examined. For example, the name Smith might be spelled Schmidt, Schmid, Schmidtt, Schmidz, Schmied, Schmiedt, Smid, Smythe, and so on. The name Nichols can be spelled 73 different ways, from Nachols to Nychals. The task to determine which of these applies to the owner in question. First names have to be checked, too. There are 25 foreign forms of John, including Johann, Jehan, Hans, Shaun, Gudi, and Efom.
Rights established by judgement decrees, unpaid federal income taxes, and mechanic's liens all might be prior claims on the property, ahead of the buyer or lender's rights. If a judgement is discovered that constitutes a defect in the title, it is pointed out, and the seller must then eliminate it before the title of the new buyer can be insured free and clear of that judgement.
When these searches have been completed, the title company issues a commitment to insure, stating the conditions under which it will insure the title. The buyer and seller and the mortgage lender can proceed with the closing of the transaction after clearing up any defects in the title, which may have been uncovered by the search and examination.
The mortgage lender is as concerned as the buyer about the quality of the title because the property is to be security for the new mortgage loan. The mortgage lender requires assurance that it has a valid first (or another acceptable priority) mortgage lien on the property. This is not only common sense, but generally is a legal requirement of regulated mortgage lenders.
The lender's title insurance, however, doesn't protect the new buyer of the property. Although the land is the same, the interest of the buyer and the interest of the lender are very different. The provisions of a lender's title insurance policy are very different from those of a buyer's policy, so the buyer should obtain his own policy, often issued simultaneously with the lender's policy.
Copyright 1993 by Chicago Title Insurance Co. All Rights Reserved. Last modified January 1997. www.chicagotile.com