What is a Preliminary Title Report?
In my opinion, the preliminary title report is one of the hardest documents to read and understand in a Real Estate transaction. It's filled with Real Estate jargon and legalise statements. In a basic nut sheet, the preliminary title report will show all the items attached to the deed of the home. It is the job of escrow to make sure the a clean title/deed is transferred to the new owner. Read on below for a more in depth explanation.
After the buyer (you) and seller have reached an agreement, but before the close of escrow, the preliminary title report needs review. It’s not going to be one of the most riveting documents you’ll ever read. But you should examine the preliminary title report closely, as it’s one of the most important documents a buyer will receive.
Among dozens of documents that serve to disclose to the buyer important knowledge about the property, the preliminary title report documents ownership, vesting and detail regarding anything that is recorded against the property. For a buyer, the title report will reveal various liens, encroachments, easements and anything else recorded against the property. The title company compiles the report from a search of county records in order to issue title insurance, and any liens against the property are listed as “exceptions” to title insurance.
Don't want to read, that's okay, I'm a visual learner too! Click HERE to watch a short video series that helps to explain the title/escrow process.
What is Title?
Proving who owns the property
Land is as old as time itself. Like the structures built on it, land is "real property", meaning that it can't be moved or hidden. Because real property is valuable, many people want to claim ownership. "Titles" came about as a means of legally proving who owns the property.
Through the centuries, however, a parcel of property may change hands dozens of times. At any point along the chain of ownership, problems may arise that cast a "cloud" over a title, putting a claim of ownership in doubt. Such as:
Long lost relatives or past owners could show up, sometimes from long ago, with a claim to the property that supersedes yours.
Sometimes people fraudulently sell houses that don't belong to them. For example, the husband of a divorcing couple could forge the signature of his wife, and abscond with the proceeds of the sale. In a court of law, the rights of the wife could be upheld and the property could go to her, no matter how much money an unsuspecting purchaser had placed in the house.
To get loans, people often use property as collateral (security against non-payment). If someone doesn't pay back their loan, the lien holding lender has a legal right to sell off the property to get their money back-even if the house has since sold to a new owner. This is because the lien (claim to a property as payment on a debt) is on the house. Unless the debt is paid off and the lien released, the lien stays with the house even when it changes ownership.
With today's refinance and home equity markets, lenders' interest in properties has increased exponentially and both lenders and county recorders can sometimes be challenged to keep up with the documentation. So it's possible that an unrecorded or unreleased interest in your property could be out there, making title insurance more important now than ever.
An easement is a right to use the land of another for a special purpose. For example, the city may have plans to build a sewer line sometime in the future. If the sewer line runs through the back of your yard, and if the city has an easement on the underground portion of your property, this might cause your prize roses to be dug up, or prevent you from building a pool in your backyard.
If a homeowner fails to pay his or her taxes, local, state or federal tax authorities can obtain a lien on the home, which gives the government a claim to that property in case of non-payment of debt. If the owner sells the home without settling the tax lien, the tax authority can legally get the new homeowner to pay the original homeowner’s back taxes. And if the new homeowner fails to comply, they could lose their new home.
How do you protect yourself from mistakes, fraud and other complications? Through title insurance. It protects your claim to your property from potential problems caused by irregularities that may have occurred in the past. Dollar for dollar, it's one of the most cost-efficient forms of insurance for home owners. Its relatively low, one-time premium covers you against legal problems that could cost tens of thousands of dollars-and even the loss of your home.
What is a Title Search?
A number of factors are involved in this process
A title search is a means of ascertaining that the person who is selling the property really has the right to sell it, and that the buyer is getting all the right to the property that he or she is paying for.
The title company examines several aspects during a title search. For example:
Chain of Title- This is simply a history of the ownership of a particular piece of property, describing who bought it and sold it, and when. The information may be derived from public records-usually a County Clerk’s or Recorder's office.
Tax Search- This is a search to determine the present status of general real estate taxes against the property. If a buyer purchases property with unpaid and past due taxes or assessments against it, he or she is likely to find a government body -the village, county or state-placing the property up for sale to pay those taxes or assessments. Title insurance from Fidelity protects the buyer against loss from unpaid and past due taxes and assessments.
Report on Possession - We often send inspectors to look at the property to verify the lot size, check the location of improvements, look for evidence of easements that are not shown of record and check on who is living there.
This eyewitness account supplements the information learned from the title search. For example, the inspector might detect an unrecorded easement or other evidence of outstanding rights that could affect the owner's title and possibly the value and intended use of the property.
Judgment and Name Search - One of the most important parts of the title search is to determine if there are any unsatisfied judgments against the seller or previous owners which were in existence while they owned the title. A judgment is a general lien against the debtor's real estate and constitutes security for any money owed under the judgment. The real estate can be sold to satisfy the judgment.
It is extremely important to be sure that a title is not subject to judgments against the seller or previous owners. Title insurance provides this protection.
Commitment- When these searches have been completed, Fidelity National Title issues a commitment to insure, stating the conditions under which it will insure the title. The buyer and seller and the mortgage lender can proceed with the closing of the transaction after clearing up any defects in the title which may have been uncovered by the search and examination.
Got questions?? I'm sure you do, that's a lot of information! Reach out to me. I'm always available to discuss anything Real Estate related!