What is a Preliminary Title Report and Why is it Important When Buying a House?

Key takeaways

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

Beginning the closing process on a home is an exciting time, but there are several steps you’ll need to clear before officially receiving the keys. One of those steps is to get and review a preliminary title report. If you aren’t familiar with why a preliminary title report is important, don’t worry, we’re here to help.

In this Redfin article, we’ll outline what a preliminary title report covers and why it’s important for you as the buyer. Whether you’re buying a house in Houston, TX, or a condo in Boston, MA, here’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 history of ownership. After the buyer and seller sign the purchase agreement, an attorney or title company will review the home’s title. They’ll look for any problems that may prevent the home from being legally sold. 

The results are written up for the buyer in a preliminary title report. You’ll usually get your preliminary title report within a few days, which you should review as soon as you receive it. You typically only have a few days to review the report and raise concerns. 

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

Why do I need a preliminary title report?

The preliminary title report will show if anyone other than the seller has a legal claim on the property. For example, a title report could show that the seller is recently divorced and is selling the home without the permission of their ex-spouse. It can also reveal any 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 can provide specific guidance on what to look for in the report. In general, you’ll want to look for the following types of issues:

Mortgage liens

Also known as an encumbrance, a lien is a legal claim of ownership listed on the title of the home. There are a few types of liens, but mortgage liens are the most common. When you get a mortgage, your lender will have 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 has not made mortgage payments.

Tax liens

Tax liens are also common, as any property taxes that are still due are considered a “lien.” The current owner must resolve their property tax bill before the home can be sold. There may be additional tax liens on the property, 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 a portion of a property for a specific purpose. Most commonly, easements are granted for city access, such as utility easements, water and sewer lines, or trash pickup. However, sometimes an easement may be an agreement between neighbors, such as the use of a road. 

An easement doesn’t prevent a home from being sold. However, it may limit what a buyer can do with the property, which could affect their decision to move forward with the purchase. Keep in mind that easements can be removed from the title, but both parties need to agree to the removal.

Encroachments

An encroachment is another type of encumbrance, and it occurs when a structure or feature extends onto a neighboring property without permission. For example, this could be a fence, tree, or underground structure that encroaches onto your property, but does not belong to your home. Encroachments are often unintentional, but it’s best to clear up the issue before buying the home. 

CC&Rs

If you’re purchasing a home that’s part of an HOA, the Covenants, Conditions, and Restrictions (CC&Rs) may be listed on the title. CC&Rs are a set of rules the homeowner must abide by as outlined by the HOA. Examples include approved paint colors, landscaping expectations, or restrictions on yard decorations. 

How do I clear up issues with the title report?

If there are issues with the title report, it’s important to address them immediately. You’ll need to work with your real estate agent, the seller, and the title company or attorney that performed the review. You typically only have a few days after receiving your report to raise concerns or request corrections. 

Remember, it’s in the seller’s best interest to help clear up any title issues – they want to sell the home as much as you want to buy it. Issues can usually be cleared up by negotiating easements with neighbors or by redrawing property boundaries to include or exclude trees, fences, or other items that are creating conflicts.

If there are problems with the report that cannot be cleared up, such as financial-related liens, you may want to consider backing out of the sale. If you have a title contingency, you can use this to back out of the deal without repercussions. 

FAQs about preliminary title reports

Who orders the preliminary title report?

The seller or the title company will order the preliminary title report, but it’s usually the buyer who pays for the report as part of closing costs.

How much is a preliminary title report?

A preliminary title report typically costs anywhere from $75 to $250. Note 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 they legally own 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 back out of the home sale if there are issues with the report?

If the issues on the title report are serious enough to make you want to back out of the deal, you should notify your agent immediately. Should you have a title contingency, you can use this to back out of the sale without repercussions. If you don’t have one, then you may lose out on your earnest money. 

What is a title contingency?

A title contingency allows the buyer to back out of the sale if there are issues uncovered with the title, such as conflict of ownership or property rights issues, that may prevent the home from being sold.

The post What is a Preliminary Title Report and Why is it Important When Buying a House? appeared first on Redfin | Real Estate Tips for Home Buying, Selling & More.