It’s not that you need to know all the ins and outs of a title insurance commitment when working with the new buyer. It is not the real estate practitioner’s job to advise clients and interpret title commitment provisions and items. Rather those details are for the attorneys. But at the end of the day, it is helpful to have a basic understanding and be familiar with the context when you are asked to assist in amending an offer or pointing a party in the right direction to obtain documents and information needed to clear standard exceptions on the title insurance commitment.

What is a title commitment?

In a title commitment, the title insurance company acts as an independent party to verify who owns the property. The title insurance company checks the public records and issues a title insurance commitment that gives information about the title to the property prior to the contemplated real estate transaction. The owner’s title insurance policy is the means by which a seller in Wisconsin typically proves that the seller actually owns the property being sold, in other words, it is the “evidence of title” required on lines 340-342 of the 2011 WB-11 Residential Offer to Purchase. The title policy helps make sure the seller’s past title problems don’t come back and bite the buyer.

The title insurance company provides a contract of indemnity to the buyer, if the requirements in the title commitment are fulfilled, and will pay the buyer if there is a compensable claim. It is called a commitment because the title insurance underwriter is committing to issue a title insurance policy if the requirements stated in the commitment are met. Title insurance is basically an insurance policy that protects the buyer against loss resulting from a defect in title unless the issue is excluded, excepted or disclosed in the policy. That is why minimizing the number of exclusions and exceptions is so important to many buyers.

Policies not always perfect

The title insurance policies do not always catch everything. There can be surprise or sneak attack liens that pop up without warning such as a federal estate tax lien or a lien arising from the seizure of assets in federal criminal investigations. If that is the case, the title insurance company may have to pay the policyholder’s claim. The title company will reimburse the insured for that loss and any related legal expenses, up to the face amount of the policy. The title insurance premium is only paid once, but the coverage continues until the party conveys the property. If the owner dies, the coverage automatically continues for the benefit of the property owner’s heirs.

Commitment components

A title insurance commitment informs the buyer of the status of title to the property before the transaction is closed and commits the title insurance company to issue a policy if the requirements are met. Although it may look like a lot of legal “mumbo jumbo,” we can break it down to the three sections with the recognizable components that are specific to the upcoming transaction: the Schedule A basic information, the Schedule B-I requirements for the issuance of the buyer’s title insurance policy, and the Schedule B-II exceptions that the buyer may want addressed so the items are covered.

Schedule A basics 

Schedule A includes the beginning basics such as the:

• Current owner’s name.
• Property description.
• Type of policy that will be issued. 
• Type of interest being insured, for example, fee simple. 
• Proposed insured’s name: the buyer or the lender. 
• Dollar amount of title insurance, which generally is the purchase price or the loan amount of the loan being insured. 
• Commitment date, formerly known as the effective date. The commitment date is not the date on which the title insurance commitment is issued but rather the date through which the public land records were certified and searchable. It is the date through which the records were searched, in other words, “current as of.” The earlier the commitment date, the greater the risk that liens have since been recorded unbeknownst to the buyer.

Schedule B-I requirements 

Schedule B-I is the punch list of the documents and fees that will be required at closing if the title insurance policy is to be issued. Typical requirements include:

• Payment of the purchase price. 
• Payment of the title insurance policy premiums. 
• Execution and recording of the buyer’s deed and mortgage. 
• Payment and release of existing mortgages.
• Satisfaction of tax liens or judgment liens.

Schedule B-II exceptions 

Schedule B-II of the title commitment lists exceptions, that is, categories of items that will be excluded from coverage in the buyer’s title insurance policy unless they are disposed of to the satisfaction of the title insurance company. Many of these exceptions, like parties in possession and encroachments or easements not of record, are understandable from the title insurance company’s perspective because they cannot be discerned based solely upon examination of public records.

If an exception is unacceptable to the buyer, the buyer or the buyer’s attorney may be able to convince the title company to remove it; insure over it with an endorsement; or eliminate the exception by obtaining a special assessment letter, owner’s affidavit, survey map or other document. The buyer may have the option of paying an additional fee to obtain “extended coverage” that will remove some or perhaps all exceptions. Extended coverage insures against defects not ascertainable from the public records, and may include coverage for rights or claims of parties in possession, unfiled construction liens, and matters disposed of by a complete and accurate survey. All of the standard exceptions may not be able to be removed depending upon the circumstances and the supplemental documentation the parties can provide.

The typical exceptions and steps a buyer may take to delete them or have the title insurance company insure over them include:

“The gap” 

The commitment will use language like “Any defect, lien, encumbrance, adverse claim, or other matter that appears for the first time in the Public Records or is created, attaches, or is disclosed between the Commitment Date and the date on which all of the Schedule B, Part I-Requirements are met.” This is referring to the gap period. 

This may be eliminated with a gap endorsement whereby the title company assumes the risk, based on an indemnity agreement signed by the seller and the payment of any gap endorsement fee. The WB offers to purchase require the seller to provide a gap endorsement for the buyer’s owner policy, if it is available. For example, see lines 343-347 of the WB-11 Residential Offer to Purchase. If gap endorsements are not available, it would be wise to point this out to buyers so that they may discuss this with their attorneys.

Special taxes, charges and assessments

Special assessments become a lien on the title when the municipality enacts a resolution approving the assessment for the improvement.

This may be removed with a satisfactory special assessment letter from the municipality indicating there are no levied special assessments, a statement that there are no special assessments currently due and payable.

Construction liens

This is typically described on the title commitment as, “Any lien or right to a lien, for services, labor, or material heretofore or hereafter furnished, imposed by law and not shown by the public records.” Because a construction lien may not be filed until six months after the work was done or the materials were supplied, these “secret” lurking liens are especially troublesome for buyers and title companies.

This exception may be removed if the seller provides a construction work affidavit confirming no work occurred at the property within the last six months. If work was done, the seller may be asked for a list of contractors and lien waivers.

Parties in possession

This would include individuals such as tenants or unrecorded land contract buyers. This exception may appear on the title commitment as, “Rights or claims by parties other than the Insured in actual possession of any or all of the property.” 

The title insurance company might be persuaded to remove this if the seller provides an affidavit indicating there are no tenants or other occupants in possession of the property.

The standard survey exception

This will be indicated by language in the list of exceptions stating, “Any encroachment, encumbrance, violation, variation, or adverse circumstance affecting title that would be disclosed by an accurate and complete survey of the land.”

The survey exception is the hardest to have removed, and an ALTA survey may be needed to pull this off. The title insurance company will want a survey with a surveyor’s certificate certifying he or she has examined the property for encroachments, the description is complete and all buildings, structures, fences and improvements are depicted. The title examiner will look for setback violations, roof overhangs, retaining walls, other obstructions and the location of utility easements, and there may be information regarding wetlands or floodplains as well, which might trigger further inquiry. If this is important to a buyer, it would be best to find that out from the beginning because a survey contingency may be needed in the offer to make sure the right kind of survey is obtained.

One classic example of this is illustrated in First American Title Insurance Company v. Dahlmann, 2006 WI 65. The survey/encroachment exception had been removed from the policy when Dahlmann purchased the Madison Inn in January 1999. In this case, the Wisconsin Supreme Court held that a substantial underground encroachment onto the adjacent property was covered by Dahlmann’s title insurance policy, which wouldn’t have happened if the exception had not been removed. To read more about this case, see pages 9-10 of the March 2007 Legal Update, “Case Law Update,” at www.wra.org/LU0703.

Easements or claims of easements not shown in the public records

This heading is used to make it clear that there is no coverage against an easement that would not be disclosed in a land survey, such as an aviation easement, unrecorded utility easement or prescriptive easements such as for a private road, shared well or footpaths used seasonally.

Public utility easements are not always recorded and are not readily detectable because the utilities are frequently underground. Because of this, the easement exception may not be removed without an ALTA/NSPS survey with a certification that all easements are reported, certifications from the local utilities confirming no installations, or engineering information from the local utilities.

Claims of adverse possession and prescriptive easement

This exception may be removed if the title company is furnished with a current, satisfactory survey that shows no adverse possession or prescriptive easements.

Utility charges

Liens, hook-up charges or fees, deferred charges, reserve capacity assessments, impact fees, or other charges or fees due and payable on the development or improvement of the property, often when the building permit is applied for. 

This exception will remain in place if the property is vacant land.