What is a title commitment?

This article regards the title commitment. I will discuss its structure and function. This writing is crafted for the non-title professional. Real estate professionals often have a hard time differentiating between a title commitment, a title policy, and a title search. I hope this article offers you some clarity.

First of all, what is a title commitment? A title commitment is a document created by a title examiner, which document sets forth requirements that must be satisfied by a customer before an underwriter will insure that particular transaction. The commitment also discloses exceptions to title that will be included in the final policy, unless these exceptions are properly satisfied and removed. The title commitment consists of Schedule A, Schedule B-I, and Schedule B-II. I will discuss each of these Schedules in some detail. From this point forward I will refer to the title commitment as a commitment.

First, a discussion of Schedule A:

As most of us know, commitments can come in many forms and styles, but the guts and purpose of the commitment are the same among all title companies in Michigan. I will discuss the commitment using a very traditional model. In your practice, you will encounter many creative and often overwritten and cumbersome commitments. But there is good news: When you understand the structure and function of the commitment, you will have little trouble in weeding out the relevant issues.

Schedule A is the first page of the commitment. At the very top of this Schedule you will see the title company's file number. It is very important to keep track of the file number, as you may need to reference it many times throughout the transaction. Next, you will see a date and time, such as June 1, 2004 at 8:00 a.m. This date is known as the effective date. I will not use the acronym ED for obvious reasons! The effective date is disclosed by the register of deeds (ROD) office located in the county where the property is located. For clarity, when the ROD receives an instrument for recording, it will assign the instrument a liber and page number. The date the instrument is recorded will be displayed directly beneath the liber and page number. When this process is completed, the instrument is said to be recorded and indexed.

The ROD receives a tremendous number of documents for recording on a daily basis. As a result, they simply can't record all instruments on the same day they are submitted. So, for example, on July 1 the ROD may have an effective date of June 1. That particular ROD is indexed through June 1 only. The effective date, in almost all counties, is prior to the current date. The effective date is very simple to understand and it should be explained to all parties.

Next, there is a section for listing the proposed insured parties. This section discloses the purchasing party and the amount of the purchase price, as well as the lending party and the amount of the loan. The parties to a transaction, as well as the purchase price and loan amount, frequently change throughout the negotiation process. As these changes occur, the examiner will simply revise the commitment to reflect the particular change. This is where the file number becomes important, because you may be requesting the revised commitment.

The next section of Schedule A is quite possibly the most important section in the entire commitment. This section discloses who the owner of the property is. This may seem an overstatement on my part, but consider this for example: Let's say the commitment recites the owner of the property as Bob Jones and Mary Jones, husband wife, when, in fact, Bob Jones and Mary Jones are not married. Let's further assume that the examiner erred in reading the deed. The deed recites the grantees as Bob Jones and Mary Jones, as tenants in common. If the property is conveyed without the signature of the real spouse of Bob Jones, the new owner's title will be subject to the inchoate dower interest of the spouse of Bob Jones. Disclosing the proper state of title is, in my opinion, the most important function of the title examiner.

The last section of Schedule A consists of the legal description of the land which is the subject of the transaction. I will not go into detail about legal descriptions in this writing. It is enough to say that the examiner must confirm that the proper legal description is set forth. And remember, the title policy insures the legal description, not the address of the property.

In summary, Schedule A is the informative schedule. It discloses the current effective date; the parties to the transaction; what the transaction is; the amount of the transaction; who owns the property; and the property which is the subject of the transaction. Indeed, it discloses the overall structure of the transaction.

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