The homebuying process is exciting but can also be stressful. You may have found your dream home after months of searching. But is it really?
While the structure and property itself may seem perfect, you may also be acquiring liens placed on the property by the previous owner or find recorded documents that will restrict your use of the property.
The preliminary report will provide you with the opportunity to review matters affecting your property prior to purchasing. In simple terms, the preliminary title report is a document that lists who owns the home and summarizes any claims against the property. Think of it like a Carfax but for a house and property. It is a report that alerts you to problems with the title that could cause a deal to fall apart.
For this reason, both buyers and sellers need to understand preliminary reports.
What is a Preliminary Report?
A preliminary report is a report prepared prior to issuing a policy of title insurance that shows the ownership of a specific parcel of land, together with the liens and encumbrances. The report describes the property in question and outlines exclusions that would not be covered under the title insurance policy once it is instated.
The report’s exclusions section is important because it informs you of problems with the title before you buy. Some exclusions are standard. However, things like unpaid taxes and liens imposed on the property due to unpaid consumer debt are classified as “clouds on the title” that may need to be resolved before ownership can be transferred.
Finding a cloud on the title can bring the entire process to a halt because the buyer will likely have trouble getting approved for a mortgage on a house that has liens or questionable ownership. Even if the buyer could proceed with financing, they would run the risk of someone claiming ownership of the property after they buy.
How to Get a Title Report for a Property
The preliminary title report is typically generated after entering escrow so the buyer does not need to do anything special to get this. If you are the seller, you could request a copy as soon as you put the property on the market. It is best to avoid issues or know about them early. Any cloud on the title that is discovered at the last minute could be costly and time-consuming, and could lead to the deal falling through.
If your seller’s agent does not give you the report automatically, you can request it. Or you can do a bit of preliminary title research on your own before even listing using sites online.
How to Read a Preliminary Report
When reviewing a preliminary title report for real estate, confirm that the person who is selling the home has the legal right to do so. This can help you avoid a property claim down the road. You will be primarily interested in the extent of your ownership rights. This means you will want to review the ownership interest in the property you will be buying as well as any claims, restrictions or interests of other people involving the property.
The report will note in a statement of vesting the degree, quantity, nature and extent of the owner’s interest in the real property. The most common form of interest is “fee simple” or “fee” which is the highest type of interest an owner can have in land.
Also, look through the exclusions list for tax liens and other personal liens against the home that might impact your decision to purchase the property. These may be claims by creditors who have liens or liens for payment of taxes or assessments. If the seller does not agree with the liens, they may choose to dispute or pursue legal action to get them released. This can take time. If you are on a time schedule, you may not have time to waste.
There may also be recorded restrictions which have been placed in a prior deed or contained in what are termed CC&Rs- covenants, conditions and restrictions, which could include rules that everyone in your neighborhood has to abide by—are common. In addition to the limitations noted above, a printed list of standard exceptions and exclusions listing items not covered by your title insurance policy may be attached as an exhibit item to your report. Some exclusions—such as easements, which might include property terms that allow a utility company to run service lines, are standard. But you should still read through the entire list to ensure you agree with the terms before purchasing.
Title Report vs. Title Insurance
The title report and title insurance are similar in name but are not the same things. A preliminary report is an offer to insure, it is not a report of a complete history of recorded documents relating to the property. A preliminary report is a statement of terms and conditions of the offer to issue a title insurance policy, not a representation as to the condition of title.
These distinctions are important because no contract or liability exists until the title insurance policy is issued. Also, the title insurance policy is issued to a particular insured person and others cannot claim the benefit of the policy.
Do You Need a Preliminary Title Report?
For sellers, obtaining a title report immediately is not required, but could help you avoid hidden problems in the future. If something should arise on the report that you are not aware of and are not willing to accept, it could hold up the process of selling. A deal with title issues could motivate a would-be buyer to look elsewhere in a market with a lot of inventory. In short, coming to the market with a clean title can help you sell your home faster.
For buyers, the lender may not require that you take out owner’s title insurance, but lender’s title insurance (insurance paid by you that covers the lender’s financial interest) is often required. Shopping for your own title insurance early in the homebuying process could speed up the mortgage approval.
What Happens at Citrus Heritage Escrow?
During the escrow period, our title department begins researching and examining all historical records pertaining to the subject property. Barring any unusual circumstances, a commitment for title insurance is issued, indicating a clear title or listing any items which must be cleared prior to closing. The commitment is sent to you for review.
Your escrow officer follows instructions on your contract, coordinates deadlines, and gathers all necessary paperwork. For example, written requests for payoff information (called “demands”) are sent to the Seller’s mortgage company and any other lien holders.
When choosing an escrow company there can be many important factors to evaluate. Fees, location, staff and even recommendations from friends and colleagues are all things to consider. With Citrus Heritage Escrow by your side, you can rest assured that when you receive your settlement check, you’ve gained the maximum benefit from your home sale or purchase.
Call us today with any questions or concerns. Our professional Escrow Agents will help you through this exciting yet confusing process. (951) 335-7200