What is a title commitment in California?

You’re just a few steps away from owning the home of your dreams or the property you’ve been hoping for. But now there’s paperwork, and loads of it. Among the mountains of paper in your growing homebuying files, you will encounter two important documents related to the work your title insurance company has done on your behalf: the title commitment and the title report. These two documents sound much the same, but they actually serve different purposes. Let’s examine what each does.

The title commitment

The title commitment — which can go by various names, previously known as a preliminary title report — is essentially a promise from your title insurance company to issue a title insurance policy after you close on the property. The title commitment will spell out the terms and conditions of the agreement as well as exclusions, and that’s important. The title commitment arrives in your hands before closing, which means you have an opportunity to examine those exclusions and follow up on anything that needs to be addressed, whether it’s a lien on the property, an encumbrance of some sort, or any type of title defect that could be rectified and save you some headaches down the road. Bottom line: take time to review the title commitment; it’s essential.

Any exclusion spelled out in the title commitment that leads to an issue for you after you’ve taken ownership, represents a matter you cannot take back to the title insurance company, because it is not covered under your policy. You may want to appeal to your title insurance company and even enlist the help of an attorney if you feel the root cause of the exceptions has been addressed and the exceptions should be removed from your policy.

The title report

A title report is the result of the title search and is often a section of the title commitment as well as the final title policy that is issued following closing. As a result, it can be sometimes be referred to as the “search report.”

Title reports typically are not issued during the homebuying transaction and are generally not used during the closing. Instead they are issued for those who want to know the history of a property and its title. They can be ordered for a number of reasons, whether a spouse wants to know if their estranged loved one still owns the house they shared, if a financial institution needs to know what’s going on with a property, or if an heir has recently inherited some property. In short, a title report details the legal and ownership status of a property.

Getting a title report for a property outside of the property buying experience is possible, for the many different reasons people want or need to know a property’s history. But it can be a complex matter, involving searching through property deeds, visiting city and county officials or working with a title professional.

Understanding the complex title-related paperwork is helpful

Title paperwork, like lots of paperwork that will come your way during the homebuying process, can be complicated. Understanding the purpose of a title commitment (to promise title insurance coverage and list exceptions) and title reports (to detail the legal and ownership status of a property) is important as you work your way through the homebuying process. In the end, you’ll be grateful you took time to understand the exclusions in your coverage and address those you could before closing.

Before the policy is issued, the insurance company will conduct a title search to find any potential issues that might arise in the future. Through the examination of public records, the company will find and review any documents that might result in problems, such as liens, tax assessments, other tax documents, and special documents, such as divorce or bankruptcy filings. The results of this report are then put together in the title commitment, which represents the extent of the insurance and any exceptions. Also called a title binder, it is a proposal that becomes binding when you pay for the insurance.

Things You Should Keep in Mind

Of course, you should note the type of policy you are paying for. Some lenders will demand a Lender's Policy of Title Insurance before they issue a loan. However, you should note that the title commitment for these policies will only protect the lender and is tied to the mortgage, not the property. Instead, consider an Owner's Policy, which will remain in force as long as you stay in the property and can protect you against title claims unknown at the time of the purchase, such as forged documents or missing heirs who turn up and demand a portion of the property's worth. While costs might seem steep and the relatively low risk of such a situation developing may deter you, consider the potential costs if you happen to be one of the unlucky people who do witness the return of a lost, angry heir.

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This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.

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