Section 1101.555 of the Texas Occupations Code requires that when someone signs an offer to buy real estate in Texas and is using a real estate agent licensed by the Texas Real Estate Commission, the licensed real estate agent must provide a written notice to the buyer advising the buyer that they have two options: (1) they can have an attorney chosen by them review the abstract that pertains to the real estate that is being purchased, or (2) they can obtain or be provided with a title insurance policy. This section of the Texas Occupations Code was added in 2001 and became effective on June 1, 2003. This notice is on every promulgated contract made available by the Texas Real Estate Commission; see screenshot below for page 3 of 11 on the TXR 1601 1-4 Family Residential Contract (Resale).
Introduction to Title Commitment
Buying a home or property in Texas is an exciting experience, but it also comes with many responsibilities. One critical aspect of the process is understanding and obtaining a title commitment. A title commitment is a document issued by a title insurance company that provides essential information about the property you plan to purchase.
Purpose of Title Commitment
The primary purpose of a title commitment is to outline the terms and conditions under which a title insurance policy will be issued. It also serves to protect both the buyer and the lender from potential problems with the property title, such as liens, ownership disputes, or other issues that may affect the transfer of ownership.
Components of Title Commitment
A title commitment generally consists of the following components:
Schedule A: Schedule A in a title commitment provides essential details of the real estate transaction. It is divided into several sections, each containing specific information about the transaction and the property involved.
Section 1 of Schedule A lists the types of policies to be issued (Owner's Title Policy and/or Lender's Title Policy). Realtors representing buyers should review this portion to ensure that the buyer's name and the sales price are accurately displayed.
Section 2 of Schedule A indicates the type of interest the buyer will acquire in the property. In most sales, this should be "Fee Simple," representing full ownership rights.
Section 3 of Schedule A displays the legal owner of the property based on a search in the real property records. Both selling and listing agents should review this section to ensure that the names listed match the seller on the contract. Discrepancies may indicate an invalid binding contract and could be due to various reasons, such as a death, divorce, bankruptcy, or marriage in the chain of title. In these cases, the listing agent and sellers need to work closely with their escrow team at Texas National Title, or a similar entity, to resolve any issues and obtain additional signatures on the contract as needed.
Section 4 of Schedule A presents the legal description of the property. It is important to note that the legal description, not the physical property address, governs the transaction. Legal documents recorded at closing should always use the description found in Section 4. Realtors should review this section to ensure that the property described is the one intended to be transferred at closing.
In summary, Schedule A in a title commitment provides crucial details about the real estate transaction, including the types of policies to be issued, the buyer's interest, the legal owner of the property, and the property's legal description. It is essential for all parties involved to carefully review this schedule to ensure the accuracy of the information and a smooth closing process.
Schedule B : A critical component of the title commitment is Schedule B, which lists the exceptions to the policy. Exceptions are items that the title insurance policy will not cover, and they fall into two categories: standard exceptions and specific exceptions.
Standard exceptions are predetermined by the Texas Department of Insurance and remain consistent across all Owner's or Lender's title policies issued in Texas. These exceptions do not change and are included in every policy to provide uniformity.
On the other hand, specific exceptions are unique to the property being insured and vary depending on the property's particular circumstances. Examples of specific exceptions include restrictions, easements, mineral severances, and setback requirements. These exceptions can affect the property's usage or impose encumbrances, making it essential for the buyer to review Schedule B thoroughly.
Buyer's agents should encourage their clients to carefully examine Schedule B, as it outlines potential limitations on the property's use and any encumbrances that may exist. Understanding these exceptions helps buyers make informed decisions and avoid surprises related to property usage restrictions or encumbrances after the transaction is complete.
Schedule C: Schedule C in a title commitment can be considered the "Clear to Close" schedule because it lists the REQUIREMENTS that must be addressed before or at closing for the title company to fund and issue its policies. This section is crucial for both buyers and sellers, as it outlines the specific items that need to be resolved before the transaction can be completed.
Examples of items listed in Schedule C include mortgage liens, tax liens, abstracts of judgment, and assessment liens. Additionally, it enumerates any other requirements that must be satisfied for the closing to occur. Sellers should pay close attention to this schedule, as it serves as a checklist of tasks they need to fulfill to ensure a timely closing.
While some simple matters, such as ordering a payoff statement on an existing lien or obtaining certified copies of documents, can be resolved by the closing team during the process, more complex issues may require the seller's and listing agent's involvement. To ensure a smooth closing, it is crucial for the listing agent to collaborate closely with their trusted closing team at a trusted title company, or a similar entity, to keep everything on track.
By addressing the requirements listed in Schedule C, all parties involved can facilitate a seamless closing process, making this section an essential component of the title commitment.
Schedule D: Schedule D in a title commitment serves primarily for disclosure purposes. This section outlines the parties who have a share in any part of the title premiums, such as underwriters and title agents.
By providing this information, Schedule D ensures transparency in the transaction by disclosing the parties involved in the issuance of the title insurance policy and their financial interests. This disclosure helps maintain trust and confidence in the title insurance process among buyers, sellers, and other stakeholders.
Importance of Title Commitment for Buyers and Sellers
Title commitments are crucial for both buyers and sellers in a real estate transaction. For buyers, they provide protection against title defects that may affect their ownership rights. For sellers, they help to ensure a smooth transaction by disclosing any potential issues upfront.
How to Review a Title Commitment
When reviewing a title commitment, it's essential to carefully examine the listed exceptions in Schedule B, and the requirements in Schedule C. These exceptions and requirements represent potential risks to the buyer and may need to be resolved before closing. It is also advisable to consult with a real estate attorney or title professional to ensure a thorough understanding of the document. A title commitment is an indispensable part of the property buying process in Texas. It helps protect the interests of all parties involved and ensures a successful transaction. Understanding the components and purpose of a title commitment is crucial for both buyers and sellers to navigate the complexities of real estate transactions effectively. As real estate agent's we have a duty to review this with our clients and to recommend they speak with a real estate attorney if they have any questions.
If you would like a referral for a real estate attorney, please contact David.
David M. Gottfried
The Gottfried Firm
West Sixth Place
1505 West Sixth Street
Austin, Texas 78703
Office: 512.494.1481
david.gottfried@thegottfriedfirm.com
www.thegottfriedfirm.com
