Title commitments and title policies in commercial real estate transactions

In Texas, and in most states, the title commitment has four schedules. The schedules are designated A, B, C and D. Each schedule serves a different purpose. Schedule A sets out the basic facts about the insurance contract, including the date the title commitment was issued, the name of the buyer and lender (if a lender is involved), the type of interest being conveyed, the amount of coverage the policy will provide, and a legal description of the property that will be insured. Although this information is straightforward, it needs to be reviewed for spelling and other grammatical errors and to confirm that the amount of coverage is equal to the purchase price or amount of money being lent.

Schedule B includes information about exceptions to coverage. Often it is necessary to employ an attorney to determine what risks are being excluded from coverage because this schedule often references several documents that are the property’s chain of title. Typical examples include deed restrictions, easements, oil and gas leases, and liens that have not been released. Also of importance are items disclosed on the survey, including easement records on plats and setback requirements. A buyer may choose to write an objection letter if any of the restrictions seem problematic. Usually, the buyer and seller will agree to a deadline for raising these objections, and a deadline for those objections to be cured if they are raised. Otherwise, the insured is agreeing to any and all restrictions, exclusions and exceptions outlined in this section of the title commitment.

Schedule C includes information and issues that must be addressed, usually by the seller, at or before closing as a condition of coverage or to avoid additional exceptions from coverage. Issues that typically must be addressed before closing include liens, probate issues or abstracts of judgment affecting the seller. Failing to address issues in Schedule C before or at closing can delay or even prevent closing. Although Schedule C is important to the seller, the buyer should note that, when issues on Schedule C are not resolved, they may end up being exceptions to the buyer’s coverage on Schedule B.

Schedule D includes information about anyone with a share in title premiums, such as title agents and underwriters of the title insurance policy. It also identifies title information, the amount of the title premium and who receives that premium. If the policy includes an arbitration provision, the buyer should request in writing before closing that the arbitration provision be deleted. Otherwise, the buyer will be unable to sue the title company in the event of a disagreement over a claim.

Title commitments and title policies play an important role in almost every real estate transaction. Failing to understand the coverage you are getting when you invest in real property can have serious consequences. To ensure you are getting the most for your title insurance premium, engaging a qualified attorney to timely review the commitment is recommended.