Written By: Melanie Rota, Op-Ed Writer
When a borrower purchases a home, the borrower gains the rights or ownership of the land. From here, the title of real property is transferred to the borrower by a deed. If the borrower obtained a mortgage to purchase the home, then the lender will require the borrower to obtain Title Insurance )which is a policy protecting the buyer or the lender from defects in title or claims that can arise regarding the condition of the title). Title Insurance is purchased from Title Company. The Title Company examines and insures the title to the real property and issues the lender Title Commitment or Title Policy. The purpose of a title commitment is to determine which items affect the title position. It also helpful in determining which items must be removed to protect the interest of all parties. Lenders will receive the Title Commitment before Title Policy. The Title Commitment will show in detail, which exception would show in a Title Policy if issued on the date of the commitment.
As an Underwriter, you will be required to review a Title Commitment. There are three main sections of a Title Commitment: Schedule A, Schedule BI and Schedule BII. In the state of Texas there additional schedules such as Schedule C and D. On Schedule A you will need to make sure the effective date of the Title Commitment is less than 90 days old, because new information can be placed on title within 90 days that can affect it. If the Title Commitment is over 90 days old, re-order a new Title Commitment or request an updated one. The Proposed Insured and Policy Amount must be correct. The Proposed Insured is your bank and the Policy Amount is the loan amount you approved. On a purchase transaction, the owners’ coverage must match the purchase price. If the Policy Amount is incorrect, contact the title company. Next check if the name and vesting information match the loan. On a purchase transaction, the seller must be the same as on the sale contract. On a refinance transaction, vesting should be in the borrower's name. If vesting is incorrect, contact title company. Additional information such as interest in the land and legal description must be accurate. The Estate or Interest in the land described on title commitment is either Fee Simple or Leasehold. Fee Simple means borrower owns the land. Leasehold means the borrower is leasing the land and you must obtain a copy of the leasehold agreement to verify the terms and that it will not affect title.
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On Schedule B1 of the Title Commitment, it will contain requirements such as Money Encumbrance which are mortgages, mechanic’s liens, tax liens, abstract of title and judgments or Non- Money Encumbrance which are encroachments, mineral rights, leases, royalties, pipeline easements and road easements. All Money encumbrances must be paid off because they will affect property ownership. All Non- Money Encumbrance must be cleared before closing because they affect how a property is used. On a purchase transaction, all seller liens must be paid at closing and released from title. On a refinance, the lien that the borrower is refinancing must be paid at closing and released from title. All subordinate liens, must be re-subordinated and a subordination agreement must be obtained.
Finally, Schedule BII will contain an exception to the title coverage. These are specific items that are not covered by the final title policy such as Assessment tax to pay for improvement or repairs in the neighborhood, Setback lines which are building lines or encroachments and Easements that cross private land. ALL easements can’t be cleared from title, so the underwriter must request endorsements that covering any loss. I hope this article will help you understand title commitments and how to review them.
About The Author
Melandie Rota - Along with being a Mortgage University Instructor, Melandie is currently serving as a Senior Mortgage Loan Underwriter. She has over 15 years of experience in the mortgage industry. She served as a Loan Processor, Senior Processor, Processing Manager, Loan Originator, Mortgage Underwriter, Due Diligence Underwriter and Senior Mortgage Loan Underwriter. She is very dedicated in teaching and leading beginners in the mortgage industry. If you're interested in becoming a writer for NAMP®, please email us at: contact@mortgageprocessor.org.
