When you're buying a property, one of the most important things to consider is the property's title. The title itself is a document that shows who actually owns the property, and it also will show any liens or encumbrances on the property. A preliminary title report is a document that provides information about the property's title, and it is an important tool for potential buyers or lenders. Preliminary title reports can make or break a real estate transaction, so understanding how it works is critical for all parties.
The Basics of this Preliminary Report
A preliminary title report is typically prepared by a title company or a real estate attorney. It provides information about the property's ownership, as well as any tax liens or encumbrances on the property. This information is important for potential buyers or lenders, as it allows them to determine the property's title status before they commit to purchasing or financing the property.
Buyers need to know about the issues accompanying the title of real property because these would be excluded from a subsequent title insurance policy. No one wants to be on the hook to deal with the headache of unpaid taxes left by the previous owner!
Like other preliminary reports, this report identifies title defects in advance of title insurance so these can be resolved before the subject property is sold.
Key Title Issues
One of the main reasons why a preliminary title report is important is that it can reveal any potential issues with the property's title -- it's in the name, after all. For example, if the property has a mortgage that has not been paid off, this will be reflected in the preliminary title report. Unpaid property taxes? Mortgage liens by the previous owners? They're all covered.
Any (surprising) ownership claims would also be discovered. Even if there aren't any underlying issues with the property, it's still a must to verify that the person selling your a house is legally entitled to do so.
The title insurance company will certainly pull all public records, so potential buyers should too, as it can help them make an informed decision about whether to proceed with the purchase of the property. If the first time you're learning about aspects of a property's title is from an escrow officer, it could be too late.
Easement Issues
Another factor that makes preliminary title reports important is that it will reveal any easements or rights of way that affect the property. The legal description of an easement is a right that allows someone to use a portion of the property for a specific purpose, such as for access or utility purposes. If there are any easements on the property, this will be reflected in the preliminary title report, and this information can be important for potential buyers to know.
Additional Conditions
In addition to revealing potential issues with the property's title, a preliminary title report can also provide information about any covenants, conditions, or restrictions that apply to the property. A covenant is a promise made by the owner of the property, and it may impose certain obligations or restrictions on the use of the property. If there are any covenants or outstanding debts that apply to the property, this will be reflected in the preliminary title report, and would likely be excluded from a new owner's title insurance if not immediately cleared.
Summary
Overall, a preliminary title report is an important tool for potential buyers or lenders. It provides valuable information about the property's title, and it can reveal any potential issues that could affect the value or marketability of the property -- an notably, what would be excluded from coverage by the lender's title insurance. It is important to review a preliminary title report carefully before making a decision about purchasing or financing a property.
Top real estate agents will handle the generation, interpretation, and navigation of a preliminary title report.
Find yours at TrueParity today.
