Question: We recently purchased a home in Peoria. After we signed the purchase contract, we got a “title commitment.” After we closed on the sale, we got a “title insurance policy.” What is the difference?
Answer: A title commitment is generally issued by a title insurance company shortly after opening of escrow. In this title commitment, the title insurance company agrees to issue a title insurance policy effective at close of escrow based on the representations in the title commitment. In other words, if the title commitment shows no easements over your property, the title insurance company will be required to issue a title insurance policy, which will show no easements.
Although a title insurance policy is similar to an automobile policy or a homeowner’s insurance policy, a major difference is that a title insurance policy affords coverage against past problems – that is, a deed forged years ago – while an automobile or homeowner’s insurance policy affords coverage against future problems, such as a fire.
Under Arizona law, the title-insurance company has no liability for a negligent title commitment. For example, if the transaction does not close, no one can rely on the title commitment, even if the title commitment negligently failed to disclose an easement or other “cloud on title.” Similarly, if an individual pays a few hundred dollars to a title insurance company for a title “search” on a home or other real property, the title insurance company will deliver a title commitment. The title-insurance company, however, will again have no liability if this title commitment negligently fails to disclose an easement or other “cloud on title.”