What to Know about Preliminary Title Reports
After entering into a contract on a home, both buyers and sellers are given the opportunity to review the preliminary title report. While they can be boring and at times difficult to read because of the amount of legalese, these important documents provide information about a home you won’t see in a listing – or even a homeowner’s inspection.
What is a preliminary title report?
The preliminary title report is compiled by the title company. It contains information such as any liens, encroachments, or easements against a home. Preliminary title reports are used when issuing title insurance policies; these title reports contain important information about your new home.
What to look for in a preliminary title report
There are three important parts of the preliminary title report that buyers should scrutinize along with their agents or real estate attorneys: the legal descriptions, the taxes, and the mortgage liens.
- Legal description
The legal description of a home is a written description of a home’s location, its boundaries, and its relation to nearby streets and intersections. For condos and other planned unit developments (PUDs), the legal description will include a home’s interest in common areas, specific or non-specific easements, and details on the parking or storage included with the unit.
The primary lien on a title report is always shown as property taxes; the title for a property cannot be transferred to a new owner until the taxes have been paid. The preliminary title report will show whether the taxes have been paid or are still due. As the top lien, the taxes must be paid before the lenders are.
- Mortgage liens
Additional mortgage liens may be listed under the property taxes, with the largest lien holder taking the first position. During closing, any liens on a home must be paid in the order they appear on the preliminary title report. In the event of a short sale, the lender must agree to the short payoff as there are not enough proceeds from the sale to pay off the liens.
Some other information to look for in the preliminary title report includes:
- Easements: Easements on the property will be listed on the title report. The title company has the ability to pull the original easement agreement for buyers to review.
- Covenants, Conditions, and Restrictions: CC&Rs are recorded against condos and other homes in PUDs. As buyers will be subjected to the rules and regulations, it is important to review the rules listed in the title report.
- Planning requirements and restrictions: Typically seen in homes with a historic designation or in a historic district, a title report may include other community rules or restrictions. These most often require owners or historic homes to seek the approval or a planning committee before altering the façade of a home.