Clarifying Title Commitment Versus Title Insurance

  Question: In a recent column, you said that the title company would have no responsibility if the title commitment negligently failed to discover a “cloud on the title.” Isn’t that what title insurance is for? Can you please clarify?

  Answer: I was trying to explain the difference between a title commitment and a title insurance policy.

• A title commitment (formerly known as a preliminary title report) is delivered to the buyer by the title company without any cost to the buyer after escrow is opened. It has one purpose: to commit the title insurance company to issue a title insurance policy at close of escrow based on the exclusions, exceptions and requirements stated in the title commitment.

• Upon review of a title commitment, the buyer can disapprove and cancel the contract and get the return of any earnest money deposited.

• If there are no problems disclosed in the title commitment, and the transaction closes, the buyer will pay for title insurance at closing.

• What if the title commitment mistakenly fails to disclose a railroad easement going under the home, and the transaction closes with the buyer paying for a title insurance policy? The answer is that, after the buyer learns of the railroad easement, the buyer has a claim under the title insurance policy for damages — that is, loss in value of the home.

• If the transaction does not close, the title company has no liability to the buyer for failing to disclose the easement in the title commitment.