Title Commitment

Week Eight: Title Insurance

Introduction

  • Focus of the week: Title Insurance
  • Review of reading materials and other relevant content

Title Commitment Overview

  • Definition of Title Commitment:
    • A commitment to issue title insurance after examining the property.
  • Receipt Timeline:
    • Title commitment usually received about a week after examination.
    • It is sent to the buying agent, listing agent, and lender.

Breakdown of Title Commitment

  • Title commitment is divided into four main schedules:

Schedule A: Actual Facts

  • Contains factual information regarding the property, crucial for title insurance:
    • Existing Title Holder: Name of the current title holder (existing title).
    • Legal Description: Specific legal description of the land.
    • Insured Buyer: Name of the proposed insured buyer.
    • Sales Price: The price at which the property is being sold.
    • Lender Information: Name of the lender involved in the transaction.
  • Importance of factual accuracy in Schedule A.

Schedule B: Buyer Notification

  • This section addresses exceptions to coverage:
    • Exceptions Defined: Items not covered by title insurance.
    • Examples of Exceptions:
    • Utility easements: Rights granted to utility companies to use parts of the land.
    • Setbacks: Regulations that prevent building within certain distances from property lines.
  • Purpose: Informs the buyer of other parties' interests or controls related to the property.

Schedule C: Clear to Close

  • Lists issues that must be resolved before closing can occur:
    • Common Issues:
    • Existing mortgages
    • Marital status issues
    • Unpaid taxes
    • Liens on the property
  • Importance: Ensures that all outstanding issues are addressed prior to closing.

Schedule D: Disclosure

  • Discloses entities involved in insurance premium collection:
    • Parties Involved: Title agents, underwriters, attorneys.
    • Details Provided:
    • Premium amounts owed for the owner's title insurance policy and mortgage policy.
    • Importance of transparency in who receives payments related to insurance.

Importance of Title Commitment for Lenders

  • Lenders particularly concerned with defects identified in the title commitment:
    • Title commitment outlines the commitments and conditions for issuing title insurance.
    • Critical for lenders to have confidence in the clear title before approving the loan.

Example of Title Commitment

  • Structure of the Contract:
    • Effective date of commitment and commitment number specified.
    • Owner of the policy and the mortgage lender noted (e.g., Bank of America).
  • Specifics found in the commitment:
    • Schedule A:
    • Fee simple interest in land specified.
    • Record title held by Faintwood Creek.
    • Schedule B:
    • Exceptions provided, including restrictive covenants.
    • Schedule C: Requirements for closing:
    • Evidence that no one currently occupying the property claims an interest.
    • Confirmation that all fees are paid.
    • Access to and from the property must be assured.
  • Premium Calculation:
    • Basic premium rates discussed, including specifics for policies exceeding $100,000.

Premium Calculation Details

  • Basic Steps for Calculation:
    1. Determine Policy Range: Identify value of the policy (e.g., $100,000).
    2. Subtract: Deduct appropriate amounts as per defined policy ranges.
    • For policy value of $4,000,000:
      • Step: $4,000,000 - $1,000,000 = $3,000,000.
    1. Multiply: Apply a specific decimal multiplier (e.g., 0.00456).
    2. Final Calculation: Add any additional costs (e.g., $5,000), with a resulting premium of $23,000 for scenarios like a $4,000,000 policy.

Texas Title Insurance Premium Rates

  • Rates effective as of September 2019 detailed:
    • Example Rates:
    • $25,000 policy results in a premium of $300.
    • Structures for higher policy amounts include adjustments:
      • $10,000,000 policy: subtract $5,000,000 and apply rules.
  • Trends in Rate Adjustments:
    • Policy Ranges:
    • $100k to $1M: subtract $100k
    • $1M to $5M: subtract $1M
    • Further classifications exist for larger amounts.

Texas Title Insurance Regulatory Review

  • Overview of titles insurance regulations in Texas:
    • Article Nine of Texas Insurance Code: regulations that title insurance must follow.
    • Prohibition against modifying basic title insurance policy forms.
    • Title companies must follow established rate rules and administrative protocols laid out by the Texas Department of Insurance:
    • Ensures consistency in the issuance of title policies.

Conclusion

  • Title insurance is essential for protecting property rights and securing lenders’ interests in real estate transactions. Several schedules govern the commitments, and understanding their implications is crucial for all parties involved. The premium structure varies based on the policy's value, following specific guidelines established by regulatory bodies in Texas.