Important points
The preliminary title report indicates whether the seller is legally allowed to sell the home. It may uncover issues such as liens or easements that could cause problems with the sale. If a problem arises, you should address it immediately with your agent and title company.
It’s an exciting time to start the closing process on your home, but there are a few steps you need to clear before you can officially receive the keys. One of those steps is to obtain and review a preliminary title report. If you’re not sure why a preliminary title report is important, don’t worry. We can help.
This Redfin article outlines what a preliminary title report is and why it’s important to buyers. Whether you’re buying a home in Houston, Texas or a condo in Boston, Massachusetts, here’s what you need to know before receiving your preliminary title report.
What is a preliminary title report?
Title refers to the legal ownership of real property and the history of that ownership. After the buyer and seller sign the sales contract, an attorney or title company will review the home’s title. They will inspect the home for any issues that could prevent it from being sold legally.
The results will be included in a preliminary title report for the buyer. Preliminary title reports typically arrive within a few days, so you should review them as soon as you receive them. Typically, you only have a few days to review the report and raise any concerns.
A preliminary title report is different from title insurance. Instead, we identify potential title issues or claims that must be resolved before a title insurance policy is issued at closing.
Why do I need a preliminary title report?
The preliminary title report shows whether anyone other than the seller has a legal claim on the property. For example, the title report may show that the seller was recently divorced and is selling the home without his ex-spouse’s permission. It may also uncover liens or issues that prevent the home from being sold to a new owner.
What issues should I look for in a preliminary title report?
Your real estate agent, attorney, or title company will be able to give you specific guidance on what to look for in your report. Generally, you should look for the following types of problems:
mortgage lien
A lien, also known as a mortgage, is a legal title claim on the title to your home. There are several types of liens, but mortgage liens are the most common. When you take out a mortgage, the lender has a substantial lien on your home until the mortgage is paid off. This lien allows the lender to take possession of the home and sell it if the homeowner does not pay the mortgage.
tax lien
Tax liens are also common, and any unpaid property taxes are considered a “lien.” The current owner must resolve the property tax bill before selling the home. Additional tax liens may arise against the property if the current owner fails to pay taxes, such as income tax or federal tax.
easement
An easement is a legal right that allows someone else to use a piece of real estate for a specific purpose. Most commonly, easements are granted for urban access, such as utility easements, water, sewer, and garbage collection. However, in some cases, easements are agreements between neighbors, such as for the use of roads.
Easements do not prevent you from selling your home. However, it may limit what a buyer can do with the property, which may affect their decision to proceed with the purchase. Note that easements can be removed from a property, but both parties must agree to the removal.
intrusion
Encroachment is another type of disturbance and occurs when a structure or feature extends onto adjacent property without permission. For example, this could be a fence, tree, or underground structure that is encroaching on your property but does not belong to your home. Although break-ins are often unintentional, it’s best to resolve the problem before purchasing a home.
CC&R
When you purchase a home that is part of an HOA, there may be covenants, conditions, and restrictions (CC&Rs) listed on the title. CC&Rs are a set of rules outlined by the HOA that homeowners must abide by. Examples include approved paint colors, landscaping expectations, garden decoration restrictions, etc.
How can I resolve title report issues?
If there is a problem with your title report, it is important to address it immediately. You will need to work with your real estate agent, the seller, and the title company or attorney who conducted the inspection. You typically have a few days after receiving your report to raise concerns or request corrections.
Remember, it is in the seller’s best interest to resolve title issues. Sellers want to sell their home as much as you want to buy it. Usually, problems can be resolved by negotiating easements with neighbors or redrawing property boundaries to include or exclude trees, fences, or other items that are causing conflicts.
If there are unresolved issues with your report, such as financial liens, you may want to consider withdrawing from the sale. If there is a title contingency, you can use this to back out of the transaction without repercussions.
Preliminary Title Report Frequently Asked Questions
Who orders a preliminary title report?
Although the seller or title company orders the preliminary title report, 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 between $75 and $250. Please note that depending on the area, it may cost up to $500.
What is a clear and marketable title?
Clear and marketable title means the current owner can prove they legally own the property and there are no outstanding claims, liens or title disputes that would prevent them from selling the home to a new buyer.
Can I cancel my home sale if there are problems with the report?
If the issues listed in your title report are serious enough that you want to back out of the deal, you should notify your agent immediately. If there is a contingency on the title, you can use this to cancel the sale without repercussions. If you don’t have one, you could lose your earnest money.
What is the title contingency?
A title contingency allows a buyer to stop the sale if the title reveals an issue that could prevent the sale of the home, such as a conflict of ownership or a property rights issue.
