One of the most important steps in the due diligence process of purchasing a property is the preliminary title report. This is particularly the case for foreclosure, bank-owned properties, or short sale. If someone has a claim against the property it will show up in this report the title company compiles.
What is a preliminary title report
A title is a legal document listing the historical record of ownership. Once an escrow is open, the title company will compile public records of all information they can find about the property’s ownership to form the preliminary title report. The preliminary title report will include items such as the owner’s name, property legal description, and any exceptions to the title.
What to look for
Because a preliminary title report contains the conditions under which the title company will issue a particular type of title insurance policy to protect undiscovered clouds on title for the owner and the bank, it is important to look for the exceptions or items excluded from coverage.
Seller’s name(s) – Does the name (or names) on the title report match the Purchase & Sale Agreement? Does the person selling you the property actually have the right or authorization to do so? For example, a divorcee who’s trying to sell the property without his wife’s acknowledgement.
Form of vesting – Fee or fee simple is the highest type of ownership interest, be more careful if the property is in an lease hold estate and what the terms of it might be.
Legal description – Does the description here actually matches what you thought you’re buying? Sometimes it’ll include a plat map or assessor’s map to illustrate the property boundary. For condo’s or PUD’s, the rights transferred with title such as parking spots or common area use should be included here as well.
Liens. A lien is a legal interest in a property. It applies to the property, not the previous owner. The most common is property taxes. Make sure to see the seller is not delinquent on their property taxes. You might also see something like a mortgage lien if there is a loan on the property then the mortgage company has a legal interest in the property as well. Hopefully you’ll never see something like mechanic’s liens which can happen when the previous owner refused to pay a contractor.
Easements. An easement is a right of way access to third parties other than the owner. You can often see these for utility companies or if you and your neighbors share a common driveway.
Encroachment. Fences or other parts of neighboring lots that cross property lines.
Should there be any problems that arise from the preliminary title report, your agent, title company, and/or an attorney will need to work with the seller and the seller’s agent to clear the unwanted liens or encumbrances before you take title.
