Today we will uncover the most often overlooked critical detail when it comes to closing on your next deal.
Skipping this one detail could cost you thousands of dollars and possibly result in you losing ownership of the property you intend to buy.
I am talking about the details found in your title insurance commitment, precisely the info found in section B 2 of the commitment where exceptions to title insurance coverage are listed.
Before we dive in, I’d like to briefly explain what title insurance is and why you need it.
Title insurance is designed to protect a buyer of real estate if any past issue relating to the marketability of title has been overlooked over the entire history of ownership for that particular property.
Title insurance only protects you in the event of PAST title issues, not future ones. It’s designed to protect you from problems that may arise from things that happened before buying the property.
By the way, when I say “property,” I mean any real estate where ownership transfers whether it be residential or commercial, vacant land, whatever.
What’s an exception? An exception is a specific item set forth that is not covered by the policy, which is excluded from coverage. STANDARD EXCEPTIONS.
Every commitment has standard or regional exceptions. The traditional Owner's Policy will not cover any defects in title, losses, or claims, which fall within the standard exceptions.
Here are some examples of standard exceptions found on title insurance commitments:
- Municipal Liens (for things such as water, sewer, garbage service unpaid bills)
- Assessments for Water, sewer, streetlight, drainage, or other types of improvements arranged for by your local government.
- Unpaid Property Taxes
- Federal Tax Liens
- Court Judgments
- Foreclosure Proceedings
- Rights of tenants as about specific unexpired lease backed rights
- Boundary Issues
- Restrictive covenants such as deed restrictions or other restrictions that pertain to the use of the land
- Child Support Liens
Please note that the actual value of any property, regardless of use, lies in the marketability of its title.
To get a copy of a free cheat sheet put out by First American Title, go to cashflowguys.com/title
If you buy any real estate piece without first obtaining Title Insurance, you are taking a huge risk!
In many cases, if you buy a property from a wholesaler with a double close, you will not receive title insurance for the purchase, meaning you are entirely uninsured against issues from the past cropping up and ripping you off.
In a perfect world, your Realtor should be reviewing the title commitment with you if you are buying a property.
If you are not working with a Realtor, then understand that the title company or closing Attorney is usually NOT required by any law (per se) to review these items with you or to call your attention to them. However, they must provide a copy to you, often buried in a mountain of other documents.
Sometimes these issues will prevent a lender from originating a new loan that uses the property in question as collateral.
If issues are found and NOT listed as exceptions to coverage, the title insurance policy will pay for legal expenses and any other related expenses to correct the title issue if it impacts the marketability of the title.
When reviewing this document before closing, you can see that the title company and seller clear all the exceptions before closing.
Once the issues are corrected, be sure to either have a replacement title commitment created or insist that the one with the problem documented be “marked up” and signed off by the title closing agent/attorney.
Once the item has been either removed or marked upon the commitment, you will have insurance protection if it comes up again as it relates to the marketability of the title.