What Buyers Must Know About Preliminary Title Reports
Among the dozens of records about a property, the title report is one of the most important. It documents ownership, vesting, and detail regarding anything recorded against the home such as liens, encroachments, or easements. The title company compiles the report from a search of county records to issue title insurance. Any liens against the property are listed as “exceptions” to a title policy. Here’s what buyers should know about preliminary title reports.
1. The legal description won’t be in the marketing materials
The legal description is everything you won’t see in any real estate agent marketing or advertising. It’s the written description of the property’s location and the boundaries of the property in relation to nearby streets and intersections. With a condo or planned unit development (PUD), the legal description will include the property’s interest in any common areas, exclusive or non-exclusive easements, and details on any parking or storage that conveys with the property.
Here’s an example of a legal description from a preliminary title report of a property:
“Beginning at a point on the Westerly line of Fifth Avenue, distant thereon 250 feet Southerly from the Southerly line of Balboa Street; running thence Southerly along the Westerly line of Fifth Avenue 25 feet; thence at a right angle Westerly 120 feet,” and so on.
Legalese? Absolutely. But it’s precise. And necessary.
2. Taxes must be paid
Property taxes always show up as the primary “lien” on a title report. As the top lien, the report will indicate whether taxes are due or paid in full. Taxes must be settled before any debt holder gets paid.
3. Mortgage liens are paid in order
Mortgage liens are generally listed directly below property taxes, and they’re always ordered first, second, and third. The largest lien holder generally takes first position.
When a sale closes, the liens must be paid in the order they appear on the title report. In the case of a short sale, there aren’t enough proceeds from the sale to pay off the property taxes and all of the lien holders. So one or more lenders will get “shorted” by the amount they’re owed. In order for the sale to close, the lender must agree to the short payoff.
Other items you may see in a title report
Easements. If another property owner has access to the property via an easement, it would be recorded on the title report. This stays on the report until both parties agree to remove it. The title company can pull the original easement agreement for review.
CC&Rs. In the case of a condo or PUD, there are Covenants, Conditions and Restrictions (CC&Rs), recorded against the property. Any new buyer purchases are subject to the rules and regulations documented in the CC&Rs. That’s why it’s important for potential buyers to review them. Once you’re the owner, you’re subject to those rules.
Restrictions, historic oversights, planning requirements. From time to time, there will be items on the preliminary title report that aren’t run of the mill. If the home is located in a historic district and therefore subject to the rules and restrictions of that community, it will show up on the title. In this case, if there are restrictions about changing the facade of a house or requirements that facade alterations comply with a local historical oversight committee led by the local planning department, a potential buyer needs to know this.