TITLE INSURANCE; REVIEW: Seller shall provide and pay for a commitment to issue an ALTA owner's policy of title insurance (the "Commitment"), issued through a reputable title company selected by the Seller, insuring marketable fee simple title to the Property in Buyer’s name in the amount of the purchase price as of the time and date of recordation of Seller's deed, subject only to the Permitted Exceptions defined below. Buyer shall pay the premiums of such title insurance policy. Seller shall, as soon as practicable, cause the Commitment to be furnished and delivered to Buyer. ------
- We are buying a business and we are little confused about the above clause. The sellers agent states that Only commitment is important. Owners policy is really not going to serve any purpose. and Lender will ask for Lender's policy------
1) I would like to understand the difference/importance between Commitment, Owners Policy & Lenders Policy.
The attorney you hired in connection with purchase of the business should have no problem in answering these for you so I would encourage you to get the necessary information from a source that you are already comfortable with. That said, the long and the short of it is protection in the event that someone comes along and disputes the title of the real estate - in other words did the seller actually own the property he/she is purporting to sell. What the seller's agent means by the commitment being important is that the insurer presumably would not issue the commitment without having reviewed the records to determine that title is good. The problem with that approach is that if you do not go forward and purchase the owner's policy and something does come up you could lose the property completely without compensation from any source. The lenders policy will only protect the lender up to the amount you still owe on any mortgage on the property so to the extent you have equity from putting money down on the property or having added value to the property you will be out of luck. I do not see why the lender would need a lender's policy separate from an owner's policy unless no owner's policy were purchased.
Quite frankly you really should not be making what are likely to be very significant expenditures without having the benefit of counsel so I strongly suggest you reconsider your approach.
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As you can imagine because the purchase of the home is one of the most expensive purchases you make in your life any title insurance is a must
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A title commitment is a document that a title agent issues to a buyer and if there is a lender, to a lender of a transaction promising to issued an owner's policy and lender's policy provided certain requirements are met after closing. The commitment itself is not important but it does provide the blueprint for the transaction; what need to be done (payoff mortgage, get estoppel, check cert, good standing for corp sellers and buyers, etc...) in order to convey marketable title to the buyer.
An owner's policy is an insurance policy issued to the buyer usually in the amount of the purchase price of the real property which protects a buyer from any title issues for as long as the buyer owns the property. (so no one can come later and claim an interest in the property and if they do, you can submit a claim and are covered up to the amount of your owners policy)
A lender's policy is an insurance policy issued to a lender usually in the amount of the loan amount of a mortgage and protects against loss caused by invalidity of the mortgage, which might occur as a result of defective title, or against loss of priority of the mortgage (first lien position).
I have never suggested to any client in 14 years of practice that an owner's policy (if representing a buyer) or a lender's policy (if representing a lender) was unnecessary. In fact, the piece of mind the policy provides to the client is in my opinion well worth the cost of the premium.
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