We live in a growing community. Businesses are bustling and prime property is purchased. Investors and entrepreneurs have boundless opportunities to start new projects and set themselves up for success. Whether we are just starting to invest, or have been around the commercial real estate block a few times, it’s essential to nail down the basics, starting with a title commitment and a title policy.
What’s the difference?
A title commitment occurs before closing on a purchase, while a title policy happens after everything is official. We can think of a title commitment as an offer and an overview that points out key parts of the policy. Depending on the conditions listed in the title commitment, the seller might have to fix certain problems first. The next step is title insurance, a policy which provides coverage for the property.
What is a title commitment?
A title commitment is a promise. The title company issues a document after a property closing that insures a title insurance policy. It lists issues that exist or potential issues, so we are aware of the risks, and contains the same information that will be on the buyer’s future insurance policy. If there are clear potential issues, it would be beneficial to review them with the title agent.
It’s extremely important to consider what is excluded in the title commitment. Years down the road, the property could have a problem, and the title company would be unable to help. Look at the list of exceptions thoroughly. Whatever is listed won’t be covered.
What are the polices?
After a purchase or sales agreement, we are ready to move from a title commitment to the actual policy. There are two types of title policies:
1. Owner’s Policy
The owner’s policy protects title rights as long as we own the property. Sometimes, it’s standard for the seller to purchase an owner’s policy for the buyer, but not always. In other cases, an owner’s policy is a recommended purchase.
Purchasing an owner’s policy protects against losses from property problems that occurred before purchase. These are problems that surfaced after the purchase. It’s handy to have, since it will protect the property title from risks like fraud and errors or forgery in previous deeds, if listed in the policy.
2. Loan Policy
The lender will require a loan policy if there is a mortgage to purchase the property. A loan policy protects the bank and lender’s interest until the mortgage is paid off, as long as they maintain interest on the property. Refinancing would require a new policy.
A loan policy protects the lender’s interest in the property. If a claim against the property voids the title, the policy will repay the balance.
Texas offers an efficient process of acquiring land and property to save time. And time is precious when it comes to meeting our goals and continuing life’s ventures. Real estate transactions don’t have to be complex. If you find a firm that also assists with title services, you can get the access you need, when you need it.