How to Read a Title Commitment – Video
Kathy Fettke: Now, on to the Owner’s Policy versus the Lender’s Policy. This could be pretty confusing, let’s talk about the different forms of ownership.
Lara Paul: On the Owner’s Policy, first and foremost, we need to know how you want to take title to the property. There are a few different ways to take title. Obviously, if you’re purchasing the property as an individual, you can go into title as an individual. That is the most common way as an individual. If you wanted to take title with another person, there are two options: You can take title as joint tenants with right of survivorship or tenants in common.
Joint tenants with right of survivorship would be an example of, if I were to go into title with a sibling, and, something were to happen to my sibling, I would then inherit their 50% of the property. If I were to go into title as tenants in common with my sibling, if something were to happen to my sibling, then the 50% ownership that they have in the property will be passed on to their heirs.
Those are the differences between joint tenants with right of survivorship and tenants in common. Tenants by the entireties is basically just husband and wife. Obviously, with a husband and wife in title, the 50% ownership just passes to the spouse after one of the spouses is deceased.
Kathy: Okay. Now, don’t most couples choose the joint tenants with rights of survivorship, or do they usually choose the tenants by the entireties?
Lara: Most commonly, joint tenants with rights of survivorship is used.
Kathy: Right. So, understanding the policy terminology, that is always the challenge when it comes to any contract, let alone insurance. Let’s go down this list.
Lara: Okay. The effective date is going to be the most recent month, date and year the county has certified their records to. What that means is when we go to the county to pull our records and to do our title search, the county has what’s called a certification date. That date may not be the date that we’re there doing our research. They may have only gotten their documents recorded to a point, a week or two in the past.
That is what we use as the effective date because anything that was recorded after that date, obviously, we’re not going to find when we’re at the courthouse. That is what the effective date is.
The amount of the insurance, for the Owner’s Policy, is going to be the dollar amount that you used to purchase the property. The liability amount would be equal to the contracted sales price of the home.
The amount of insurance on the loan policy is going to be the loan amount. It would be the same as the principal amount of the insured new mortgage.
Kathy: Let’s review a sample commitment for insurance. Here we go. First American Title Insurance Company, Schedule A. Let’s walk through this [See Video 03:00].
Lara: First off, we have a little cheat sheet. Schedule A is going to go through the commitment. If you’re looking at the first part, we’re going to be able to match what’s on the commitment on the following pages:
Number 1, is the effective date. This is the month, date and year that the title was certified at the courthouse.
Number 2, is the commitment number, and that’s going to be our file number here at the title company.
Number 3, is the amount of insurance for the Owner’s Policy, this is going to be the same amount as your sales price.
Number 4, is the proposed insured, this is how you are planning to take title. If you’re going in title as an individual, it will have your individual name. If you’re going in title with another person, it would be both names, and then, whether or not you’re going to take title as joint tenants with right of survivorship, or tenants in common, or it can be a husband and wife, who will then be entitled as tenants by the entirety.
Number 5, is the amount of insurance if you’re getting a loan. This is for the loan policy, and that amount would be the same as the loan amount.
Number 6, would be the proposed insured for the loan, this will be the same as the lender name. If you’re getting a loan, for instance, through Wells Fargo, it’s going to say Wells Fargo Bank there.
Number 7, is the current owner of the property, this how title is currently vested. If it’s in title as an individual, husband and wife, joint tenants, a land trust, all of that information is going to be shown here, and you want to make sure that the person showing in title is also who signs the contract.
Number 8, is going to be the property address.
Once we go through Schedule A, that’s going to be the basic information on the purchase. Then we can move on to Schedule B, Section two of the commitment. Schedule B, Section two. This is the part of the commitment that you really want to look at. This is going to show whether there is any liens against the property currently that we need to pay a closing. It’s also going to show the tax amount and if there’s any delinquent taxes.
For number one, we have the taxes. It’s going to show the tax year and when the taxes are due. It’s going to have the parcel number. It’s going to have any exemptions that are filed against the property and it’s going to have the tax amount and whether or not they’ve been paid.
Then a little bit below that, for number two, is some special assessments. For instance, in Indiana, we have Solid Waste and Storm Water Assessments that are paid with the taxes. Those are going to be listed below.
Item number four is a mortgage against the property. You’ll see item number four and five, there’s two mortgages listed against this property. Anytime that you are reviewing your title commitment, you’re always going to start with the taxes. Then below that, there will be mortgages listed if there are any mortgages. Then below that will be any judgments. This particular commitment that we’re reviewing does not have any judgments against the property.
Kathy: Great. Well, Lara, thank you so much for joining us here today. We really appreciate you taking the time to explain this to us.