After getting a property under contract, the buyer has an opportunity to “look under the hood” and negotiate with the seller before fully committing to their purchase. Many people are aware of the option period, which allows the buyer to conduct a physical inspection of the house and check for major capital expenditure issues such as HVAC, roof, plumbing, etc. Few buyers know that in addition to that option period, they also have a period where they can review the title commitment and make an objection to the title insurance policy coverage. 

A title company’s main responsibility is to ensure that the seller is the owner of the property and has the right to sell the property so that the buyer is receiving “clean title” to the property. A title company will usually check for recorded liens, verify the seller’s marital status and check for other encumbrances on the property. As a result of the title company’s search, they will produce an initial title commitment. 

To understand what a title objection letter is, one must first understand the process of getting  title insurance. Typically there are  three stages in title diligence for buyers or lenders; 1) the title commitment, 2) objection letter, and 3) title insurance policy.

Prior to obtaining a title insurance policy, under a purchase agreement, the buyer or lender may seek maximum coverage to secure the loan or value of the property. The title company will provide a title commitment with policy coverage, coverage exceptions, and curatives required. During the time to review title commitment, the buyer or lender may provide the title objection letter to dispute or negotiate the terms and conditions of the coverage exceptions.

Generally, the commitment is broken down into separate schedules. Schedule A states the basic information – the who, what, where and how. Schedule B states the exceptions to coverage, Schedule C states the items that need to be taken care of prior to closing (essentially a to-do list) and Schedule D is a disclosure. The objection letter will usually reference Schedules B and C.

Title objection letters should be specific and are used for various reasons such as objection to an encumbrance to the property. This includes objecting to expired, not applicable, or unenforceable easement, leases, subordinate liens, tax assessments, access, mineral interest, restrictive covenants, or schedule B modification.

Objection letters are also to dispute the area and boundary lines (survey), whether there’s a shortage, overlap of improvements, or encroachments, to name a few.

The objection letter is usually directed towards the buyer (if the given by lender), or to the seller (if given by buyer) and a copy must be provided  to the title/escrow company. The parties to the transaction are responsible for performing any curative matters.  

Some exceptions in Schedule B and C of the title commitment can be eliminated but ensure that it’s not overlooked prior to closing. However, many exceptions to title are correct or meritorious but can be addressed by performing curatives. If certain encumbrances or exceptions cannot be covered, the commitment and/or survey will identify and provide full disclosure so that parties are making an informed decision with the transaction.

At times, there are problems which the seller cannot cure, and therefore closing cannot happen. In the event of a major problem, buyers should confirm the terms of the agreement to find out if they can receive their earnest money back. However, if the parties wish to continue to pursue the transaction and close, it is important to have a real estate attorney review the title commitment and propose options to clear title.

If you need an attorney to review your title commitment, or to learn more, contact Integrity Law Group PLLC.

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