Preliminary Title Report: Why You Need One

Key Takeaways

• A preliminary title report shows whether a seller is legally allowed to sell the home.
• It can reveal issues, such as liens or easements, that could cause problems with the sale.
• You should discuss any issues with your agent and title company immediately.

Start with closing process Buying a home is an exciting time, but there are several steps you need to go through before you officially receive the keys. One of those steps is obtaining and reviewing a preliminary title report. If you don’t know why a preliminary title report is important, don’t worry: we’re here to help.

In this Redfin article, we explain what a preliminary title report entails and why it is important to you as a buyer. Whether you are buy a house in Houston, Texasor a apartment in Boston, MAHere’s what you need to know before you receive your preliminary title report.

What is a preliminary title report?

A title refers to the legal ownership rights to a property and its ownership history. After the buyer and seller agree purchase agreementan attorney or title company will review the title of the house. They will look for any problems that could prevent the house from being sold legally.

The results are recorded for the buyer in a preliminary property report. You will normally receive your preliminary title report within a few days, which you should review as soon as you receive it. You usually only have a few days to review the report and express your concerns.

A preliminary title report is not the same as title insurance. Instead, it identifies potential title problems or claims that need to be resolved before the title insurance policy is issued at closing.

Why do I need a preliminary title report?

The preliminary title report will reveal whether anyone other than the seller has a legal claim to the property. For example, a property report may show that the seller recently divorced and is selling the home without the ex-spouse’s permission. It’s also possible disclose any liens or problems that prevent the home from being sold to a new owner.

What points should I pay attention to in a preliminary title report?

Your real estate agentattorney or title company can provide specific guidance on what to look for in the report. In general, you will want to look out for the following types of problems:

Mortgage liens

A lien, also known as an encumbrance, is a legal claim of ownership placed on the title of the home. There are a few types of liens, but mortgage liens are the most common. When you take out a mortgage, your lender has a significant lien on your home until the mortgage is paid off. This lien allows the lender to repossess and sell the home if the homeowner has not made mortgage payments.

Tax rights

Tax liens are also common because any property taxes still owed are considered a “lien.” The current owner must resolve his property tax assessment before the home can be sold. The property may have additional tax liens, such as income or federal taxes, if the current owner has not kept up with these payments.

Easements

Easements are legal rights that allow someone else to use part of a property for a specific purpose. Typically, easements are granted for access to the city, such as utilities, water and sewer lines, or trash collection. Sometimes, however, an easement can be an agreement between neighbors, such as the use of a road.

An easement does not prevent a house from being sold. However, it can limit what a buyer can do with the property, which could impact their decision to proceed with the purchase. Please note that easements can be removed from the title, but both parties must agree to the removal.

Infestations

An encroachment is another type of encumbrance and occurs when a structure or feature extends into an adjacent property without permission. This could, for example, be a fence, tree or underground structure that encroaches on your property, but is not part of your home. Breaches are often unintentional, but it is best to resolve the problem before purchasing the home.

CC&Rs

If you buy a house that is part of a HOAthe Covenants, Conditions and Restrictions (CC&Rs) can be stated on the title. CC&Rs are a set of rules that the homeowner must adhere to, as set forth by the HOA. Examples include approved paint colors, landscaping expectations, or restrictions on yard decorations.

How do I resolve title report issues?

If there are any issues with the title report, it is important to resolve them immediately. You will need to work with your real estate agent, the seller, and the title company or attorney who conducted the appraisal. After receiving your report, you usually only have a few days to raise your concerns or request corrections.

Please note that it is in the seller’s best interest to resolve any title issues; he or she wants to sell the house as much as you want to buy it. Problems can usually be resolved by negotiating easements with neighbors or by redrawing property boundaries to include or exclude trees, fences, or other items that cause conflict.

If there are any issues with the report that cannot be resolved, such as financial liens, you may want to consider canceling the sale. If you have a title contingencyyou can use this to cancel the deal without consequences.

Frequently Asked Questions About Preliminary Title Reports

Who orders the preliminary title report?

The seller or title company orders the preliminary title report, but it is usually the buyer who pays for the report as part of the closing costs.

How much does a preliminary title report cost?

A preliminary title report typically costs anywhere from $75 to $250. Keep in mind that some areas cost as much as $500.

What is a clear and marketable title?

A clear and marketable title means that the current owner can prove that he or she legally owns the property and that there are no unresolved claims, liens, or ownership disputes that would prevent the home from being sold to a new buyer.

Can I revoke the sale of the house if there are problems with the report?

If the problems in the title report are serious enough to cause you to want to cancel the deal, you should notify your agent immediately. If there is a title contingency, you can use it to end the sale without consequences. If you don’t have one, you could be missing out on your money.

What is a title contingency?

A retention of title allows the buyer to withdraw from the sale if problems are discovered with the title, such as ownership conflicts or title issues, that prevent the property from being sold.