When embarking on a real estate venture, fully exploring your funding options is one of the first steps. There are many types of lenders for commercial real estate projects, with private lenders being one of the funding options.

If you choose a private lender, it’s necessary to find one you can trust and work with throughout the lifecycle of your real estate investment project.

Understanding real estate investment strategies is a part of the process, and working with a private money lender with a successful track record in profitable development projects can make a big difference.

Since private and hard money lenders often have smaller teams to underwrite loans and process paperwork, it is important to know who is working on your loan file and what their background is reviewing your title commitment documents.

The title commitment for your commercial real estate project—and all it contains—is a very important document, and your real estate investment cannot move forward without it.

RoseRock, a private money lender for real estate in Texas, understands that understanding how to read the title commitment and its importance to both lenders and borrowers can be difficult.

For starters, here are some important things to know about title commitments:

• It’s typical for title commitments to differ by state. The schedules can change in order, as well as what items are included in each schedule. Each schedule has important details about your purchase, so it’s important to do your due diligence and thoroughly read through the title commitment to ensure there aren’t any mistakes or discrepancies.
• The title commitment will list the insurance company providing the insurance policy. This often differs from the title company handling the closing transaction, which is typically an agent and can use different insurance companies for different transactions.

As mentioned previously, title commitments often differ by state. In Texas, there are generally four schedules in the title commitment.

• Schedule A contains owner information, proposed owner and lienholder information, title insurance policy coverage amounts, and the legal description to confirm all properties/parcels included in the transaction.
• Schedule B contains all coverage exceptions from the insurance company. While all aspects of the schedules are important, Schedule B is particularly imperative to review in detail. If you notice an issue, you can discuss it with the title company handling the transaction and request that certain exceptions be removed or additional endorsements be added to the policy.
• Schedule C pertains to the current lienholders or parties with recorded interests in the property. Examples of documents in this section are the first lien deed of trust, second lien deed of trust, assignment of leases and/or rents, deed of trust extensions, and subordination agreements.
• Schedule D contains information about the title company itself, as well as the cost of coverage.

Why Are Title Commitments Important?

The information included in your title commitment contains crucial details for your real estate transaction that could cause complications down the road or reveal undisclosed lienholders or property restrictions that could impact your investment. It includes:

• Owners of record, which is especially important if there are multiple parcels involved or multiple owners know who have authority/ownership over the property.
• Other parties with recorded interests or liens against the property, as well as the requirements for removing those liens.
• Zoning restrictions, easements, mineral rights, deeds for third parties, oil and gas leases, right-of-way or access easements for other parties or parcels, and conflicts or issues with neighboring properties.
• Parcel numbers to confirm the exact parcels included in the transaction.

When you carefully review your title commitment, if you notice that the commitment is missing any parcels or the total acreage does not equal the seller’s advertised amount, this is cause for concern and should be remedied with the title company or the seller. These metrics should always be compared to a survey of the property.

It’s also important to ensure the legal description in the title commitment matches the recent survey’s legal description exactly. If it does not, either the commitment or the survey will need to be revised immediately. The title company is usually able to provide the best solution to continue moving forward in this case.

The permitted exceptions outlined in Schedule B of the commitment should also come with copies of the recorded documents to verify the specifics of those exceptions. If the recorded documents were not provided, the title company should be able to provide those backup documents once you request them.

It is important to read through these documents, especially for new construction or development projects, since they can impact the project's viability. For example, a recorded document outlining zoning restrictions could limit the height of the building that can be developed, ruling out certain types of projects to be built on that site.

Other Details within the Title Commitment to be Aware Of:

• Lienholders and the amounts needed to satisfy the lien so it will be released. When you review, it’s important to ensure all the numbers add up correctly. The title will use these amounts on the closing statement to determine the amounts to collect in order to pay off the existing lienholder(s).
• Ascertain if there is more than one lienholder or any unpaid liens from previous service providers for the existing owner.
• Verify who is the lienholder for each property if there are multiple parcels.

While this might seem like a daunting number of details to review, making sure your title commitment contains correct, accurate information is paramount to your real estate transaction proceeding without holdups. Working with a lender who has in-house legal counsel to review the title commitment and/or development experience can help protect you further by knowing you have a knowledgeable team to help fill in your knowledge gaps.

Commercial real estate projects can be an excellent investment but can also become costly if not done correctly.

Once you’ve thoroughly read through your title commitment and ensured all the information is correct and current, you can move forward in the next phase of your real estate project and are one step closer to completion.