Welcome to the largest Sequim Real Estate Blog with over 1,900 articles.
You will receive a Preliminary Title Report from your title company shortly after you and the seller reached an agreement for the purchase of your new home. The Preliminary Title Report is the first important document you will receive when you buy a home. It is a thick document, which has several key sections, and being able to read a Preliminary Title Report is very important. Today I’ll tell you how to read it.
The first section of the title report will tell you who is vested in title, i.e. who owns the property legally, and it will also show you as the proposed insured. Why do you need title insurance? A title company will insure that the title you get is free and clear of all mortgages (except your own new mortgage), liens of any kind (labor liens, mechanic’s liens, federal tax liens), judgments against the seller, and any other clouds on the title. The seller actually pays the one-time premium for your title insurance, but if you get a loan, your mortgage company will also require a mortgage title policy, and you will pay for that.
The preliminary title report shows what is on the record now when your transaction is pending, but when your transaction closes, you will get a final title report showing that you are getting a clear title. The most important section of your preliminary title report is called “Special Exceptions,” and this is where you will find everything that is recorded against this real estate, and any related potential liens or title issues, including the list above.
If there are Covenants (CC&Rs) on the property, you’ll find mention of that in the Special Exceptions of your preliminary title report. If there is an easement running over the property, it will show up here. Normally, you will get a copy of all related documents attached to your preliminary title report, so that’s why this is so important. You should read through the title report and all the attached documents. You may need help from your Buyer’s Agent interpreting the covenants or the preliminary title report, but you can always get title answers directly from your title company.
One important thing you should know is that if a neighbor has or is making a claim to part of the property by way of adverse possession, or a claim to access to his property by way of a prescriptive easement, those potential legal claims do not show up on a preliminary title report.
And now you know how to read a preliminary title report.
Possibly Related Posts:
Title issues come in a variety of sizes and shapes, and they can delay your closing or kill your transaction entirely. Title issues include things like a defective recorded document, a judgment, a Federal tax lien, a cloud on the title, like a neighbor who is claiming adverse possession of a strip of land, a gap in the chain of title, a probate that was not completed, and that is just the tip of the iceberg.
Normally a title issue is discovered as soon as a preliminary title report is prepared by the title company. I saw many defective real estate documents during the years I practiced real estate law. Here’s an example. A property owner decides to create a view easement over a second lot that he owns, because he plans to sell that lot. He hires a surveyor to legally locate and describe the the easement portion of the lot, and the surveyor prepares the drawing showing the easement on the plat, and he drafts an easement agreement. But here’s where the surveyor creates a huge problem for the seller that the seller does not discover until he tries to sell his own house many years later.
The surveyor drafted and recorded a defective easement document. Surveyors are not lawyers, and the two jobs are substantially different. Drafting a legal document like an easement agreement requires legal sufficiency, and surveyors do not go to law school or practice law to learn how to draft legal documents. But surveyors practice law without a license all the time. No one cares, and if they could draft legally sufficient documents, it would be no big deal, but when they record defective agreements that are not discovered until years later when a property is sold, it can create a major title issue, a problem that has to be solved in order to get title insurance.
This can mean hiring an attorney to draft a legally sufficient document, one that the title company will like so they can insure the title. It can delay the closing, and if the required parties are not available or refuse to sign the new agreement, there will be serious trouble. If a buyer cannot get title insurance, they will not be able to get a loan.
Title issues are something you cannot anticipate, but as I’ve written elsewhere, there are a thousands traps for the unwary in real estate. Getting good advice is important if you have title issues. Knowing what the problem is, how to solve it, and applying a diplomatic touch usually will get you through title issues.
Possibly Related Posts:
Title insurance is a wise purchase. Truth is stranger than fiction. Imagine purchasing a beautiful piece of real estate intended to be your retirement property and getting stuck with a judgment which was not on the record when you bought your property. It happened to Helmuth and Beverley Prochaska in Whatcom County, Washington.
This article reviews the recent Washington Appellate case of Prochaska v. Midwest Title Guaranty Co., 85 Wn. App. 256 (March, 1997). You’ll see the importance of title insurance.
The Prochaskas moved here from South Carolina. They went through the normal and cautious procedures to purchase their dream property: they included financing contingencies in the Purchase & Sale Agreement, and they obtained and paid for a title insurance policy. The purpose of the title insurance policy, of course, was to insure that they would get a clean title, free from encumbrances of any kind. They did everything you would do in a normal transaction.
Disaster strikes! Nine (9) minutes before the title company recorded the Prochaska’s statutory warranty deed, an out-of-state judgment against the seller of the property was recorded with the Whatcom County Superior Court clerk. Two days later the Superior Court clerk entered the judgment on the official court records (also known as the execution docket). So the judgment was not actually discoverable by anyone who searched the public records until two days after the Prochaska’s deed was recorded.
To be sure there is no misunderstanding, I want to state the dates and the times. The out-of-state judgment (against the seller) was filed on September 14, 1988, at exactly 10:05 a.m., and the Prochaska’s statutory warranty deed was recorded on September 14, 1988, at exactly 10:14 a.m. Recall that the judgment did not get recorded on the records by the clerk until September 16, 1988. Was there title insurance?
Most of us would conclude that the Prochaskas own the property and are ahead of the judgment, or to say it another way, the judgment did not attach to the Prochaska’s property since the judgment against the seller came after the closing and recording to the Prochaskas.
Not so, says the Washington Appellate Court. Listen up, because this decision is a title company’s worst nightmare, and it could also create a problem for a buyer. It deals with an age old problem for title companies, but the court inks what one would only hope could not be.
The court bases its ruling on technical interpretations of the law and this has everything to do with title insurance. As many of us know, judges can give us some incredible law this way. The court hangs its hat on the fact that RCW 4.56.200 establishes that a judgment becomes a lien on real property upon filing with the county clerk. Apparently, it is so what if the clerk doesn’t get the judgment entered in the public record for a couple of days later. The court goes on to say that the Prochaskas had constructive notice when the judgment was filed, even though there was no possibility they could have discovered it until September 16th.
Concluding, the court says that the out-of-state judgment is a lien on the property (a $100,000 lien), and the Prochaskas are stuck with it. The court politely says that the Prochaska’s remedy is to go after the seller or the insuring title company on the protection afforded in the title insurance. Guess who is going to get stuck with the bill? Right! The title company, because as in most cases, the seller is like the turnip from which you can get no blood. By the way, the title company did a good job closing this transaction, and there was nothing the title company could have done to prevent this whole scenario.
Now, does anyone want to complain about the small premium you pay your title company for taking huge risks? Not me. In my opinion, the title companies do not charge enough to close and insure your title. Title insurance is a bargain.
Possibly Related Posts: