Investing in Florida real estate is an exciting prospect, and can represent one of the most significant purchases you’ll make. This makes it especially important to ensure that all essential documentation and protections are in order, helping you to mitigate potential risks and move forward to closing and beyond with confidence.
Unfortunately, one of the common hurdles buyers can struggle with is the terminology related to these essential items. Having a firm grasp on the differences between title commitment and title policy can certainly affect how smoothly you navigate your purchase and any disputes related to liens or ownership. Let’s take a closer look at this subject; exploring the distinctive aspects of each term and how they apply to a successful real estate purchase in Florida.
What Is a Title Commitment?
In simple terms, a title commitment is a preliminary document that is issued by a title insurance company. It is not yet a full policy. Rather, it acts as a form of promise from the insurer that they will issue the final title insurance policy once specific conditions have been met.
Although it isn’t considered to be an insurance policy in and of itself, it is still a legally binding document under Florida law. If all conditions set forth in the commitment are clearly met, the insurer has an obligation to issue the policy.
Key Parts of a Title Commitment
In most cases, title commitments in Florida will take a relatively consistent form. This will usually be composed of the following components.
| Component | Purpose |
|---|---|
| Schedule A | Sets forth the basic terms of the transaction. This includes the names of all relevant parties, a full legal description of the property, and the proposed amount of insurance. |
| Schedule B-I | Sets forth all requirements that must be met before the insurers will issue the policy. Some examples here may include paying outstanding property taxes or satisfying any current liens. |
| Schedule B-II | Sets forth all exceptions that the proposed title policy will not cover. Some common exclusions here include easements, restrictive covenants, and zoning issues. |
These schedules are designed to provide maximum clarity to all key parties—buyers, sellers, lenders, and attorneys—who require transparency on potential hurdles to closing.
What Is a Title Policy?
The title policy is a document that is issued only once all the requirements of the title commitment have been met and the official closing has been completed accordingly. It is the final insurance contract that provides coverage to the insured party, typically against the following issues:
- Title defects
- Liens
- Ownership disputes
In order to be covered by the title policy, these issues must have existed—although not necessarily known by the insured party—at the date of closing and without forming part of the exceptions outlined in the policy or title commitment. Should one of these issues arise after the policy has been issued, the insured party can then claim for resulting financial losses and legal expenses.
Owner’s Policy vs. Lender’s Policy
Title policies in Florida are not only issued to the buyer of the property. Rather, coverage may be issued to both the owner of the property and the lender providing financing related to the purchase.
Owner’s Title Policy
An owner’s title policy is specifically designed to protect the buyer’s interests in the property they’ve purchased. Should a covered title defect occur, the insurer will typically reimburse the owner for any financial losses related to the issue or in rectifying it.
Lender’s Title Policy
Coverage is designed to protect a mortgage lender’s financial interests in the property, reimbursing lenders for any loss related to covered defects. In many instances, mortgage lenders will require buyers to obtain this insurance as a condition of the loan, further safeguarding the company’s interests.
Once the conditions of a title commitment have been met and the closing of the sale has been completed, both of these types of title policy will typically be issued simultaneously. While a lender’s policy may be a condition of a loan, the owner’s policy is usually optional in Florida.
Why the Title Commitment Matters
It can seem as though a title commitment is just a formality in Florida real estate transactions. Yet, it plays an important role. Alongside acting as confirmation that insurance is likely to be issued, it also provides clarity on potential defects in the chain of ownership that stand in the way of a policy being issued. As a result, there is motivation for all key parties to investigate, identify, and rectify such issues before moving forward with the sale and ensure the property is being transferred with a clear title.
The types of title issues that can arise can often depend on the location. In Florida, some of the common elements for addressing that appear in title commitments include:
- Unpaid property taxes
- Judgment liens
- Unresolved mortgages
- Homeowners’ Association (HOA) fines and code violation enforcements
By establishing the presence of these issues and correcting them before closing, there is confirmation that they won’t carry over to the buyer and the terms of policy coverage are met.
Common Exceptions in Title Commitments
Alongside the requirement for addressing any issues, a title commitment will also outline any exceptions to policy coverage. These are aspects that, even should all other conditions of coverage be met, the insurer will not compensate the insured party for.
Common exceptions in Florida include:
- Losses arising from easements that grant utility companies access to the property
- Losses related to restrictive covenants that are in place from prior developments
- Losses related to zoning regulations that limit how the land can be used
These exceptions mean that should one of the excluded events occur, the buyer will be responsible for any costs or losses related to the issue. As a result, it is vital that buyers take the time to fully understand the exceptions and their potential consequences. An experienced Florida real estate attorney can be key to providing clarity here and advice on further risk mitigation.
The key takeaway here is that taking a responsible approach to arranging a title commitment and then following the conditions to gaining the full policy is in everyone’s best interests. You not only minimize the potential for title issues down the line, but you’re also able to make informed choices on the route to and beyond closing.
