What is a title report and why does it matter?
A preliminary title report is generated after a real estate seller accepts an offer from a buyer and escrow is opened for the transaction. It lists all items of record that may affect ownership, use and enjoyment of the property, including easements, restrictions on use or transfer, and debts owed by the seller that are “secured” by the property. Secured debts such as mortgages and liens must be paid in full by the seller at closing before title to the property may be transferred.
A buyer typically gets three days to review the title report and let the seller know if there are issues that must be resolved prior to closing. If a title report is unacceptable, a buyer may chose to cancel the transaction. Most real estate agents are not attorneys and are prohibited from providing legal advice. Our clients have the benefit of working with a licensed attorney – Stephanie Marshall – who will review and explain any potential risks shown in the title report. Our clients can be confident that their decision whether to proceed with the transaction after a title report review is fully informed, without having to consult with an outside attorney in most cases.
Here are Three Things to Look for in a Title Report Review:
- Are there any recorded liens against the property other than expected mortgages?
The seller will have to satisfy all debts and liens that are “of record” at closing. Recorded liens will be reflected in the title report. If the purchase price will not leave sufficient funds for the seller to close the transaction, the parties may have to revisit the agreement or even cancel the transaction. In some cases, the seller may be able to resolve inaccurate recorded liens by providing evidence to the lien holder the debt has been paid and getting the lien holder to record a release of lien document. Another surprise that may arise in title report review is a judgment lien. Whether resolution of these clouds on title may be reached in a timely manner will vary depending on the details and complexities of these issues.
It is vital that both buyer and seller have legal representation if they do not wish to cancel the transaction on these bases. In many cases, we can help our clients without them having to retain a separate attorney.
2. Are there any easements or encroachments that could affect use of the property?
A title report will list all recorded easements on the property which include utility easements for power, water and sewer/septic. Those easements could affect your ability to install hardscape items like fences or walls. If nearby properties or a neighborhood association have an access easement across the property, determining the whether the traveled way differs from the easement location is advisable too.
It goes without saying that it is best to avoid legal disputes with your neighbors. Fencing and driveways are a common issue when conflict arises. For larger properties and lots that were created more than 5 years ago, you may wish to retain a surveyor before buying or selling to confirm corners of the property and determine where lot lines and easements lie. It may be advisable to talk with the neighbors before making an offer or listing your property to mitigate against future surprises. We will bring Stephanie’s legal expertise to the table in attempting to navigate any red flag issues that arise in title review.
3. Are there any restrictive covenants against the property?
Even if the property is not within a homeowners association (HOA), there may be restrictions recorded against the property. A title report will show if there are any Conditions, Covenants and Restrictions (CCRs) on the property. CCRs are essentially a contract between the owner of the property and the neighborhood, which apply to the owner and all successive purchasers of the property. Restrictive covenants may significantly restrict property uses. Parking restrictions, prohibition on basketball hoops, playground equipment, RV storage and accessory dwelling units could undermine a buyer’s plans for the property. Architectural review committees also may be empowered to restrict paint color and use of certain construction materials. Even if there is not an HOA, your neighbors may seek to enforce CCRs against you in court in a breach of contract action. We are able to provide guidance regarding restrictive covenants with Stephanie’s legal license, offering more for our real estate clients than other agents can.
This post is for informational purposes only and does not constitute legal advice
