Financial ghosts pop out of the woodwork at the worst possible time — like when you’re trying to sell your house.
A title report is a bit like a background check on your house, except instead of naming any previous employers or brushes with the law, it lists anyone who might have a legal claim to your property: the IRS or other government agency due to unpaid taxes or fees; a former spouse because of outstanding child support; a credit card company or other lender; a relative named in a will … essentially, anyone connected through a debt, lien, or legal issue.
Much like a pre-listing inspection gives sellers a heads-up about serious maintenance issues they might need to tackle before selling a home, a preliminary title report can help you get your finances in order so that you can transfer ownership of your property without any trouble.
Title issues can take a long time to resolve, so it’s a good idea for sellers to address them as early as possible.
Titling and deed issues accounted for 9% of contracts with delayed settlements in August 2019, according to the National Association of Realtors’ monthly Realtors Confidence Index survey.
“That’s extremely important to know prior to putting it on the market,” said Sandra Van Camp, a real estate agent with eighteen years of experience in Rochester and Western New York.
Let’s dive deeper into what a preliminary title report is and how it can help you get ahead on your home sale.
What are preliminary title reports, full title reports, and title insurance?
Preliminary title reports
A preliminary title report shows all ownership on a specific parcel of land, “together with the liens and encumbrances” that would not be covered under a subsequent title insurance policy, says the California Land Title Association (CLTA). In other words, a preliminary title report shows potential buyers any restrictions on the land use or any liens and other financial issues they’ll acquire if they buy the property today.
A preliminary title report provides an opportunity for sellers to remove any items a buyer or the buyer’s lender might find objectionable, CLTA says. It can take a long time to correct or handle title report issues, which is why many agents suggest that sellers order a preliminary title report; that way, sellers can start working on clearing up any title problems before the house is ever listed.
Van Camp and Jennifer Murtland, a top real estate agent in the Cincinnati, Ohio, area who also serves northern Kentucky, said they like to run preliminary title reports before listing a property. Public records often have a decent amount of detail about a home’s title. However, depending on the age of the property and complexity involved, there are times when these preliminary searches don’t turn up a problem until a buyer submits an offer.
“A lot of people don’t realize they have another mortgage, or that they received federal funding that they maybe have to pay back. It’s helpful to know, too, because the mortgage will be a lien on the property, and then that’ll tell them about what they owe, approximately,” said Murtland, an agent for nine years.
Full title reports and title insurance
By contrast, a full title report is a much more comprehensive history of recorded documents relating to the property and the condition of the title. It can go back 30 to 50 years, according to RealEstateLawyers.com, part of the consumer-oriented legal website Nolo.com.
Getting a full title report is a preliminary step to securing title insurance. When a buyer takes out a mortgage, the lender requires title insurance, which protects the lender’s interest in the property until the loan is refinanced or paid off, explains First American Title Insurance Company, based in Santa Ana, California. A second type of title insurance protects the homeowner’s rights for as long as they or their heirs own the property. (In a standard transaction, the seller pays for the buyer’s title insurance policy, while the buyer pays for the lender’s title insurance.)
“Even the most skilled title professionals may not find all problems associated with a property,” First American notes, explaining the need for title insurance. “Some risks, such as title issues due to filing errors, forgeries, or undisclosed heirs, are difficult to identify.”
An issue such as a utility easement or lien could lead to delays in closing, a deal falling apart, a buyer asking the seller to pay for a rate lock extension on a mortgage, or even a lawsuit. “If they can’t close, people could be suing you because of the fact they’re out of house and home because their lease is up, or they had to move out of their house, but they can’t move into your house because we still don’t have clear title,” Van Camp said. This unwelcome scenario can be avoided by purchasing a preliminary title report.
What’s on a preliminary title report?
A preliminary title report includes the owner’s name, the street address of the property, the date to which the records have been updated, and the individual who requested the report (typically an escrow or title insurance company), according to North American Title (NAT) Company of Pleasant Hill, California, which provides title reports to members of CLTA.
The report then goes into further detail as follows:
- The owners of record and how they hold title: For instance, “Darren Love and Theresa Love, Husband and Wife as Joint Tenants,” according to the sample PDF that NAT provides for consumers.
- The property’s legal description: On NAT’s sample, this reads as: “Lot 2, Block 16, of Tract No. 22615, in the city of Long Beach, County of Los Angeles, State of California, as per map recorded in Book 2228, pages 7 to 11 inclusive of Maps, in the office of the County Recorder of Said County. Except there from any oil, gas or other hydrocarbon substances lying below a depth of 500 feet from the surface thereof, without the right of surface entry as reserved in various documents of record.”
- A plat map giving the general location of the property.
- Any “exceptions to coverage.”
A preliminary title report will also include issues that a buyer doesn’t want to inherit — and that a seller needs to resolve. These include:
- Taxes and assessments, including federal, state, county, school, and property taxes
- Mortgage liens
- Contractor liens (for instance, money owed to general or subcontractors for a home’s renovations, repair work, or remodeling projects)
- Divorce decrees for which someone owes spousal support or child support
- Personal bankruptcies
- Gambling debts
- Water rights and easements for public utilities
- Deeds of trust to secure a loan
- CCRs (covenants, conditions, and restrictions) recorded against the property, such as waste collection fees
- Restrictions, historical oversights, and planning requirements; for example, when the home is located in a historic district and subject to particular rules
Common title problems that can trip up your home sale
According to First American Title Company and Express Title Closing of Johnson City, Tennessee, common title problems include:
- Public records mistakes, such as clerical or filing errors
- Liens, a particular problem with distressed properties
- Missing heirs, who may contest a will or try to take ownership of a property years later
- Unlawful deeds, such as one made by someone who is a minor, who is married but claims to be single, or who is an undocumented resident
- Forgeries, perhaps from a previous owner obscuring the rightful ownership
- Encumbrances, such as another party holding a claim to a portion of the property because of a former lien or mortgage
- Easements, such as a government agency or utility company that has access to or use of a portion of the property
- Boundary and land survey disputes
- Undiscovered wills
- False impersonation of a previous owner
The most common issues that Van Camp and Murtland say they’ve seen on preliminary title reports are tax liens and unpaid child support. But every so often, a listing throws them a curveball.
Van Camp had one listing where the sellers had bought the house in 1990, but an owner on the previous deed, which dated several years prior, could not be found. “Deals fell through,” she said, adding that the property eventually sold.
Murtland represented one seller who said he wasn’t married when she listed the house. Ohio is a dower state, meaning that property cannot be sold unless both spouses agree or one spouse relinquishes interest in the property. “We get to the closing table, and the title person is like, ‘Where’s your spouse?’ [The client] said, ‘We’re separated.’”
A preliminary title report would have noted that the couple was still married, she said. “I did start changing my questions to, ‘Are you legally married now?’” she added.
How a preliminary title report can help your sale
A preliminary title report not only can alert you to any possible red flags with your home, but it can also launch the title search earlier, saving time and hassle at the closing table. “Many sellers can’t find their title,” Van Camp said. Depending on how old the house is, the title company might have gone out of business, so the title might have to be reconstructed.
Murtland said that if her seller chooses the title company to perform the title search, she’ll present the work to the buyer for the buyer’s lender to accept, “so then there’s no additional cost on the buyer’s or the seller’s side, and people aren’t doing the same work twice.”
Another way sellers can speed up the title search process is to provide the title company with a copy of the title insurance policy from when they bought the house. In some cases, if the policy was purchased within the past 15 years, the search can be limited to the duration during which they’ve owned the house instead of doing a full search on the title back to when the house was built.
How to obtain a preliminary title report
Because it’s part of a real estate transaction, preliminary title work occurs after your real estate agent either consults with a title company (some agencies have their own) or a title attorney, depending on the laws in your state.
If you’d like to request a preliminary title report on your own, you can obtain one from any of the four major title companies (Fidelity, Stewart, First American, or Old Republic) for a fee of a few hundred dollars.
In addition, the title research and consulting company U.S. Title Records, based in Dover, Delaware, also serves every county nationwide and U.S. territories, providing a 10- to 30-year title search and transfer history for $265. The company does other searches of property records, including mortgages, home equity lines of credit, and liens, for prices ranging from $19.50 to $275.
Regardless of how you acquire this report, what’s inside might surprise you — all the more reason to remove any potential obstacles to your sale. “The benefit of preliminary title work is that if there is a lien, you have time to clean it up,” Murtland said.
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