ARTICLE 6: Title Commitments
Title Commitments: The Investor's Blueprint for Bulletproof Acquisitions
The title commitment is the single most critical document in your commercial real estate acquisition process—yet most investors barely glance at it before closing, focusing instead on price negotiations, financing terms, and property inspections. This is a catastrophic mistake that costs investors millions annually in undiscovered liens, boundary disputes, easement conflicts, and other title defects that could have been identified and resolved before closing.
A title commitment (also called a title binder or preliminary title report) is the title insurance company's detailed analysis of the property's ownership history and current title condition. More importantly, it's their conditional promise to insure the title—conditional on the exceptions and requirements listed in the document. Those exceptions and requirements are where deals live or die.
Understanding what you're actually reading: Schedule B of your title commitment lists all the title defects, liens, easements, restrictions, and other issues that the title company has discovered and will not insure against unless they're resolved before closing. These aren't academic concerns—they're real problems that will follow you as the new owner unless you address them during your due diligence period.
This comprehensive guide reveals how to decode Schedule B exceptions that kill deals, implement systematic title defect curing processes, select the right ALTA policy endorsements to maximize your commercial property protection, and integrate title review into your acquisition due diligence workflow.
Unlocking Schedule B: The Hidden Deal-Killers in Your Title Commitment
Every title commitment is divided into schedules that contain different information. Most of the critical issues appear in Schedule B, which lists both requirements that must be satisfied before the title company will issue the final policy, and exceptions that will remain as limitations on the title insurance coverage.
Schedule B-I: Requirements
This section lists what must happen before the title company will issue the final title insurance policy:
Standard Requirements:
- Payment of the purchase price
- Proper execution and delivery of the deed
- Payment of recording fees and title insurance premiums
- Satisfaction of all Schedule B-II exceptions that can be cured
Special Requirements:
- Payoff and release of seller's existing mortgage
- Release of specific liens identified in the title search
- Execution of specific affidavits or documents
- Obtaining releases from parties with potential claims
Investor Action: Review requirements carefully to identify any that could delay closing or require seller cooperation that might not materialize.
Schedule B-II: Exceptions
This is where the real dangers lurk. Schedule B-II lists title issues that the title company has discovered and will not insure against in the final policy. These exceptions fall into several categories:
Standard Exceptions (Appear on Almost Every Title Commitment)
1. Rights of Parties in Possession
What It Says: "Rights or claims of parties in possession not shown by the public records."
What It Means: The title company won't insure against claims by anyone physically occupying the property (tenants, squatters, adverse possessors) whose rights don't appear in recorded documents.
Why It's Dangerous: A tenant with an unrecorded lease, a person claiming adverse possession, or a party claiming ownership through unrecorded documents could have rights superior to yours as the new owner.
Cure Strategy:
- Physically inspect the property and identify all occupants
- Obtain estoppel certificates from all tenants confirming their lease terms
- Investigate any evidence of occupation (vehicles, belongings, utilities in unknown names)
- Consider purchasing an ALTA 4.1 endorsement (removes this exception for additional premium)
2. Easements, Liens, or Encumbrances Not Shown by Public Records
What It Says: "Easements, or claims of easements, not shown by the public records."
What It Means: Unrecorded utility easements, prescriptive easements, or access rights established through long-term use might exist but won't be discovered in the title search.
Why It's Dangerous: An undisclosed easement could allow third parties to access your property, restrict your development plans, or reduce property value.
Cure Strategy:
- Order an ALTA survey (detailed survey showing all easements, encroachments, and boundary issues)
- Interview neighboring property owners about historical access arrangements
- Review property inspection for evidence of easement use (utility lines, access roads, pathways showing regular use)
- Consider purchasing ALTA Survey Coverage endorsement (insures that survey-disclosed easements are the only easements affecting the property)
3. Defects, Liens, Encumbrances, or Claims That May Be Created by the Insured
What It Says: "Any title defects created, allowed, or agreed to by the insured claimant."
What It Means: The title insurance won't cover problems you yourself create after closing.
Why It Matters: This is standard and unavoidable—you can't insure against your own future actions.
4. Taxes and Assessments Not Yet Due and Payable
What It Says: "Taxes or assessments which are not shown as existing liens by the records of any taxing authority."
What It Means: Future property taxes and special assessments aren't covered.
Why It Matters: Standard exception, but pay attention to whether special assessments are pending (road improvements, sewer connections, etc.). These can be substantial in commercial properties.
Cure Strategy:
- Contact the county treasurer and municipal authorities to ask about pending special assessments
- Review city/county planning documents for proposed improvements that could trigger assessments
- Factor potential assessments into your acquisition price negotiations
Specific Exceptions (Property-Specific Title Issues)
These are the deal-killers that require your immediate attention:
1. Outstanding Mortgages and Deeds of Trust
What It Says: "Deed of Trust securing an indebtedness in the amount of $500,000 recorded [date] as Document No. [number]."
What It Means: The property has an existing mortgage that must be satisfied before clear title can pass to you.
Standard Resolution: The seller's mortgage is paid off at closing from your purchase funds. The title company verifies payoff and obtains the lien release.
Red Flags:
- Mortgage balance exceeds the purchase price (indicates potential short sale requirement)
- Multiple mortgages with overlapping priority (complex payoff coordination required)
- Mortgages held by defunct lenders or in foreclosure (difficulty obtaining releases)
Cure Strategy:
- Obtain payoff statements from all lienholders early in due diligence
- Verify that sale proceeds will satisfy all liens
- If not, negotiate with lenders for short sale approval or adjust purchase terms
- Build extra time into closing timeline for lien release coordination
2. Mechanic's Liens
What It Says: "Mechanic's lien in the amount of $35,000 filed by ABC Construction Company recorded [date] as Document No. [number]."
What It Means: A contractor, subcontractor, or supplier claims the property owner owes money for work performed and has filed a lien to secure payment.
Why It's Dangerous: In Illinois, mechanic's liens can attach retroactively to property even if you weren't the owner when the work was performed.
Cure Strategy:
- Determine the validity of the lien (was work actually performed? Is amount accurate?)
- Negotiate with the lienholder for settlement or payoff
- Have seller pay off the lien before closing, or escrow funds at closing for lien resolution
- Verify lien is within the 2-year Illinois statute of limitations
- If lien is invalid or expired, file for lien discharge or obtain a bond
3. Judgment Liens
What It Says: "Judgment lien in favor of XYZ Bank against John Smith recorded [date] as Document No. [number]."
What It Means: A court judgment has been entered against a person with the same name as the current property owner, and the judgment attaches as a lien against the property.
Why It's Dangerous: Even if the judgment is against a different "John Smith," it clouds the title until clarified.
Cure Strategy:
- Obtain a certified copy of the judgment to verify if it's against the actual property owner (compare addresses, birth dates, SSNs if possible)
- If against the wrong person, file an affidavit of non-identity with supporting documentation
- If against the owner, require payoff as a closing condition
- Negotiate who bears responsibility for payoff (often seller responsibility, but sometimes negotiated)
4. Restrictive Covenants and CC&Rs
What It Says: "Covenants, conditions, and restrictions recorded in Document No. [number] dated [date]."
What It Means: The property is subject to private land-use restrictions (building height limits, architectural requirements, prohibited uses, etc.).
Why It's Dangerous: These restrictions can prevent your intended use of the property or require costly modifications to your development plans.
Cure Strategy:
- Obtain and carefully read the actual restriction documents (don't rely on title company summaries)
- Verify your intended use complies with all restrictions
- If restrictions conflict with your plans, investigate whether they can be removed or modified (often requires consent of other property owners in the development)
- Consider whether restrictions reduce property value and adjust purchase price accordingly
5. Easements (Specific Recorded Easements)
What It Says: "Easement for [purpose] in favor of [party] recorded in Document No. [number] dated [date]."
Common Types:
- Utility easements: For electric, gas, water, sewer lines
- Access easements: Allowing neighboring properties to cross your property
- Drainage easements: For stormwater management
- Prescriptive easements: Established through long-term unauthorized use
Why It's Dangerous:
- Can restrict where you can build or develop
- May allow third parties to access your property
- Could reduce usable square footage
- Might interfere with parking, loading docks, or other commercial functions
Cure Strategy:
- Order ALTA survey showing exact location of all easements
- Verify easements don't conflict with your development plans
- If they do, investigate whether easements can be relocated (requires easement holder consent) or abandoned (if no longer needed)
- Factor easement impact into property valuation
6. Tax Liens (IRS, State, or Local)
What It Says: "Federal tax lien in favor of Internal Revenue Service recorded [date] as Document No. [number]."
Why It's Catastrophic: Tax liens, especially federal liens, can survive property transfers and attach to the property in the hands of the new owner under certain circumstances.
Cure Strategy:
- ALWAYS require tax liens to be satisfied before closing (non-negotiable)
- Obtain IRS lien releases (can take 30-60 days to process)
- Consider IRS subordination if lien can't be fully satisfied (allows property to be sold with lien transferring to proceeds)
- Never close with unresolved tax liens—the consequences are too severe
The Investor's Playbook: How to Cure Title Defects Before They Cost You
Identifying title defects is only half the battle—you must know how to efficiently cure them during your due diligence period without killing deal momentum. Here's your systematic curing process.
The Title Defect Triage System
Step 1: Categorize All Schedule B-II Exceptions
Group exceptions into three categories:
Category 1 - Deal Killers (Immediate Attention Required):
- Exceptions that prevent your intended use of the property
- Liens exceeding the purchase price
- Title defects that can't be cured before your closing deadline
- Issues that fundamentally change property value
Action: Address these immediately or prepare to renegotiate or terminate the contract.
Category 2 - Material Issues (Must Be Resolved):
- Liens that can be satisfied from purchase proceeds
- Curable title defects with clear resolution paths
- Issues that don't prevent closing but create future liability if unresolved
Action: Work with the title company and seller to cure before closing.
Category 3 - Accept with Mitigation:
- Standard exceptions that can be removed via ALTA endorsements
- Minor easements that don't interfere with property use
- Restrictions that don't impact your investment strategy
Action: Purchase appropriate ALTA endorsements or accept the exceptions.
Step 2: Execute the Cure Process
For Liens and Mortgages:
Week 1 of Due Diligence:
- Request payoff statements from all lienholders
- Verify total payoff amount vs. purchase price
- Identify any short sale issues early
Week 2-3:
- Negotiate lien payoffs if amounts are disputed
- Coordinate with title company on closing payoff procedures
- Obtain commitments from seller that liens will be satisfied at closing
Closing Day:
- Verify all payoff amounts are current (some lienholders update payoff amounts daily)
- Ensure title company disburses payoff funds directly to lienholders
- Obtain commitments that lien releases will be recorded within 30 days
For Easements and Restrictions:
Immediately Upon Receipt of Title Commitment:
- Order ALTA survey
- Obtain copies of all easement and restriction documents
Within 1 Week:
- Review with your architect/engineer to verify no conflicts with development plans
- Identify any easements that must be modified or relocated
Within 2 Weeks:
- Approach easement holders about relocations if necessary
- Consult attorney about process for removing obsolete restrictions
For Judgment Liens:
Immediately:
- Verify judgment is actually against the property owner (not someone with same name)
- Obtain certified copy of the judgment
If Against Different Person:
- Prepare affidavit of non-identity
- Provide supporting documentation (different SSN, birth date, address history)
- File with court and county recorder
If Against Actual Owner:
- Require satisfaction as closing condition
- Verify satisfaction amount
- Have seller pay before or at closing
- Ensure release is recorded
Step 3: Build Closing Conditions into Purchase Contract
Your purchase contract should explicitly state that the title must be clear of specific defects:
Sample Contract Language:
"Seller shall provide marketable title free and clear of all liens, encumbrances, easements, and restrictions except: (a) Current year property taxes not yet due and payable (b) Utility easements of record that do not materially interfere with current use (c) Covenants and restrictions of record that do not prohibit Buyer's intended use
Seller shall satisfy all mortgages, judgment liens, mechanic's liens, and tax liens at or before closing at Seller's expense."
Why This Matters: Explicit contract language makes clear that title defects are the seller's responsibility to cure and gives you legal grounds to delay closing or terminate if defects aren't resolved.
Step 4: Leverage the Title Company
Don't try to cure title defects alone—the title company is your partner in this process:
Title Company Services:
- Coordination of lien payoffs
- Obtaining lien releases
- Verification of recorded satisfactions
- Preparation of curative documents (affidavits, corrective deeds, etc.)
- Communication with prior title insurers to obtain prior policy coverage
Investor Strategy:
- Maintain close communication with your title officer throughout due diligence
- Ask them to handle lien payoff coordination rather than doing it yourself
- Request their guidance on complex title issues
- Involve their attorney for difficult curing strategies
Maximizing Your Armor: Essential ALTA Endorsements for Commercial Assets
Standard title insurance policies exclude many risks that commercial investors face. ALTA (American Land Title Association) endorsements are add-ons to the base policy that expand coverage for specific risks. Here are the critical endorsements for commercial investors:
Essential Endorsements for Every Commercial Acquisition
ALTA 9 Series: Restrictions, Encroachments, Minerals (Comprehensive Coverage)
What It Covers:
- Violations of restrictive covenants
- Encroachments onto or from the property
- Damage from mineral extraction or subsurface rights
Why Investors Need It: Protects against the most common commercial property title risks.
Cost: Typically $500-$2,000 depending on property value.
ALTA 8.1: Environmental Protection Lien
What It Covers: Liens filed by government environmental agencies for contamination cleanup costs.
Why Investors Need It: Environmental liens can attach to property regardless of who caused contamination. Without this endorsement, you could be liable for cleanup costs from prior owner's actions.
Cost: $200-$1,000.
ALTA 4.1: Condominium (if applicable)
What It Covers: Specific risks related to condominium ownership, including assessment liens and common area issues.
ALTA 5.1: Planned Unit Development (PUD)
What It Covers: HOA liens, common area issues, and PUD-specific risks.
Why These Matter: If you're buying a condo or PUD property, these endorsements are essential.
Advanced Endorsements for Sophisticated Investors
ALTA 17: Access and Entry
What It Covers: Insures that the property has actual vehicular and pedestrian access to a public road.
Why It's Critical: Some properties have recorded access easements but no physical access, or the access is disputed. This endorsement guarantees functional access.
When to Require: Any property where access isn't obviously via public street frontage (landlocked parcels, properties accessed via easement, commercial developments with complex access arrangements).
ALTA 22: Location
What It Covers: Insures that the land described in the policy is the same as the land shown on the survey.
Why It Matters: Protects against errors in legal descriptions that result in insuring the wrong parcel.
When to Use: High-value acquisitions, complex legal descriptions, or properties with history of subdivision/boundary changes.
ALTA 3.1: Zoning
What It Covers:
- The property is zoned for your intended use
- Your intended improvements comply with zoning setbacks, height limits, parking requirements, etc.
- No zoning violations exist
Why It's Powerful: Shifts the risk of zoning issues to the title company rather than you.
Requirements: Usually requires a survey and zoning compliance certificate.
Cost: $500-$3,000 depending on complexity.
When to Require: Any acquisition where zoning is critical to your business plan (retail, multifamily, industrial uses).
ALTA 28: Easements - Damage or Enforced Removal
What It Covers: If an easement on your property is enforced in a way that damages your improvements or requires their removal, the policy pays for the loss.
Example: You build a parking structure, and later a utility company enforces an easement requiring you to remove part of the structure to access underground lines.
When to Require: Properties with easements affecting areas where you plan to construct improvements.
ALTA 36: Minerals and Surface Damage (Enhanced Coverage)
What It Covers: Damage to surface improvements from mineral extraction activities, whether the mineral rights are owned by you or severed.
When to Require: Properties in areas with active mineral extraction (oil, gas, coal, etc.) or where mineral rights have been severed from surface rights.
From Commitment to Closing: Integrating Title Review into Your Due Diligence
Title review shouldn't be a last-minute closing day surprise—it should be integrated into your systematic due diligence workflow from day one:
Day 1-3 (Contract Execution to Title Order)
Immediate Actions:
- Order title commitment simultaneously with contract execution
- Order ALTA survey
- Request copies of all exception documents referenced in seller's prior title policy
Why Speed Matters: Title searches take 3-7 days. Surveys take 2-4 weeks. You can't begin curing title defects until you know what they are.
Day 4-10 (Title Commitment Receipt to Initial Review)
Upon Receipt of Title Commitment:
- Read every page carefully (don't skim)
- Create a spreadsheet of all Schedule B-II exceptions
- Categorize exceptions into deal-killers, material issues, and acceptable issues
- Flag anything you don't understand for attorney review
Request Exception Documents:
- Obtain copies of all recorded documents referenced in Schedule B (easements, restrictions, prior mortgages, etc.)
- Many title companies provide these automatically; if not, request them
Title Review Meeting:
- Schedule a call with your title officer to discuss all exceptions
- Ask specific questions about cure strategies for each material exception
- Discuss which endorsements are available and recommended
Day 11-30 (Curative Period)
Lien Resolution:
- Verify all payoff amounts
- Identify any shortfalls or negotiation needs
- Obtain seller commitments to satisfy liens
Survey Review:
- When survey is received, review with your architect/engineer
- Identify any conflicts between survey and title commitment
- Flag boundary discrepancies, encroachments, or easement conflicts
Endorsement Negotiation:
- Determine which ALTA endorsements you need
- Request quotes for endorsement costs
- Negotiate with seller about splitting endorsement costs if expensive
Contract Contingency Management:
- If title defects can't be cured, decide whether to:
- Extend due diligence period
- Renegotiate price to reflect uncured defects
- Exercise contingency and terminate contract
Day 31-45 (Pre-Closing Finalization)
Final Title Update:
- Request updated title commitment showing all cured items
- Verify all required satisfactions have been recorded
- Confirm final title policy will include all requested endorsements
Closing Coordination:
- Confirm title company has current payoff amounts for all liens
- Verify wire instructions for all payoff recipients
- Review settlement statement to ensure all title costs are accurately reflected
Final Policy Review:
- After closing, review the actual title insurance policy (not just the commitment)
- Verify all endorsements are attached
- Confirm coverage amounts are correct
- Store the policy permanently with your property records
Conclusion: Title Mastery is Deal Mastery
The difference between investors who build lasting wealth and those who suffer catastrophic losses often comes down to title diligence. Sophisticated investors don't fear complex title issues—they see them as opportunities to negotiate better pricing, structure protective insurance, and eliminate risks that would destroy the unprepared.
Make title commitment review your superpower:
- Read every title commitment thoroughly (not just Schedule A)
- Categorize and triage all exceptions immediately
- Execute systematic curing processes during due diligence
- Leverage ALTA endorsements to transfer risk to insurers
- Build title expertise that gives you competitive advantages
The $1,000-$3,000 you invest in comprehensive title insurance with appropriate endorsements is trivial compared to the $100,000-$1,000,000+ in losses that uninsured title defects can create. Master title commitments, and you master the foundation of bulletproof acquisitions.