Ordering a Preliminary Title Report

What is a Preliminary Title Report?

To issue title insurance for any piece of real property, the title company will perform a title search and exam. Title experts will comb through public records such as deeds, mortgages, tax records, court records, liens, and other documents relevant to the property to put together the full ownership story of a given piece of property.

Title examiners look for issues in the chain of title and identify any encumbrances or liens to verify that there is no cloud on the title. If issues are discovered, the title company will work to clear these issues before issuing title insurance for the property.

This process, which is usually performed after a home or piece of property goes under contract, ensures that a property has a clear and marketable title. In other words, the title company makes a promise to the purchaser that there are no known issues or disputes present that would impact the purchaser’s ownership rights. This protects owners from legal complications or financial liabilities, and it’s required in order to issue title insurance.

But you don’t have to wait until a property goes under contract to perform a title search. In some cases, it’s beneficial to order a preliminary title report before listing a property.

When to Order a Preliminary Title Report

Not everyone needs to order a preliminary title report before listing their home. In fact, most people can wait until they have a signed purchase agreement and can order their title at the same time they schedule their closing.

If a home is well-kept and doesn’t have any obvious issues, the homeowner may hold off on making any repairs or improvements until the home inspection is complete. After the inspection, the homeowner can address any problems and proceed with closing – usually without any delays. Similarly, most homes have straightforward title situations, and any issues that are discovered can be addressed in a timely way without delaying the closing.

However, certain circumstances are known red flags for title issues. These red-flag situations present the potential for complicated title issues that, in some cases, can take time to resolve. If a property has visible issues such as a leaky ceiling, worn carpets, or an overgrown yard that would impact its marketability, most homeowners opt to address these issues before they list the home. Similarly, a preliminary title search allows a homeowner to address potentially complicated title issues before the sign ever goes in the yard.

Regardless of when you order the title search, these issues will need to be addressed before you complete the transaction. It can be helpful to tackle them early and avoid any surprises or delays.

Red Flags for Title Issues

The key to knowing when to order a preliminary title report is knowing which red flags to look for. When you’re listing a home, check for these potential red flags that can impact the title and closing process.

Divorce

If a home was previously owned by a married couple and that couple is no longer married at the time the home is listed, there can be a number of complicated title issues – especially ownership disputes.

Even if the divorce appears straightforward and amicable, title issues can still persist. For example, the divorce decree may not have clearly defined ownership rights for the property. There also may have been a failure to remove one spouse’s name from the deed following the divorce. Outstanding liens or debts may also plague one or both spouses.

When listing a home following a divorce, you also have to be careful to ensure that one spouse isn’t attempting to sell the property without the consent of the other. You should never rely solely on the word of the homeowner: get the title company involved to verify that the property’s ownership status is established, documented, and recorded properly before listing the home.

Estates

An estate property is a home or piece of property that has passed into the hands of heirs after the homeowner has passed away. Unfortunately, ownership disputes and other title issues are common with estate properties.

Even if the will has cleared probate and appears to be simple and straightforward, never make assumptions. Common title issues that impact estate properties include:

• Unclear division of property among heirs that leads to ownership disputes
• Contested wills
• Unrecorded deeds
• Liens or debts that belonged to the deceased property owner and must be cleared

The title company knows the right questions to ask and the right way to attack these complicated title issues to ensure a clear title for closing. If you’re listing an estate property, a quick call to your local title company can help minimize stress later on.

Trusts

Trusts allow a trustee to manage a property for the benefit of others, protecting the property while also upholding the interests of the beneficiaries. While trusts are designed to eliminate complications with an estate, there can still be title issues with properties managed by a trust.

All properties managed by a trust must have a Certificate of Trust that clearly outlines the terms of the trust agreement. It’s also essential to ensure that the trust is valid and that the person acting as the trustee has the authority to do so to prevent attempts at fraud.

Other issues can also plague trusts, such as:

• A change in beneficiaries
• Clerical errors, such as inconsistent use of the trust's name on legal documents
• Conflicts among beneficiaries

Trusts are also susceptible to other typical title issues such as liens, tax debts, and encroachments.

Tax Deeds

A tax deed is a legal document issued by a county or local government when a property owner fails to pay their property taxes. This allows the government to auction the property in order to recoup the unpaid taxes.

If a home is sold through a tax deed, there may be claims by former owners or other properties, especially if their rights weren’t properly terminated during the tax sale. Any time a tax deed is involved, this can indicate that there may be competing ownership claims.

There usually isn’t anything malicious going on, but there are certain cases in which the local government may not have notified all parties properly prior to the sale. There also may have been procedural errors during the tax sale.

These ownership disputes can be resolved, but these often require a quiet title action, which can take time and resources.

Foreclosures

Foreclosures paused during the COVID-19 pandemic, so newer realtors may not be as familiar with these properties. Foreclosures occur when an individual stops making payments on their mortgage.

Common issues with foreclosures include tax redemption issues, encroachment issues, and other common title issues (such as liens) that can impact any other property. Right of Redemption Laws are also unique to foreclosure deals, so be aware of these laws in your state.

Some title issues related to foreclosures may require a complicated settlement process. Make sure to involve a title company that has expertise with foreclosures before listing a home that has previously undergone foreclosure.

Surveys

Does the home have an existing survey? If it doesn’t, you’ll need to order this survey and conduct a preliminary title search right away.

It can take time to schedule a survey and, unfortunately, the survey may reveal all kinds of potential issues such as:

• Encroachments
• Easements
• Inaccurate legal descriptions
• Overlapping deeds

Not only does it take time to schedule a survey, but title issues revealed by a survey can also take weeks to address. Eliminate delays to closing by ensuring there is an accurate survey prior to listing the home.

While these are some of the most common red flags for title issues, this list is not comprehensive. Please talk to your title company to determine if a preliminary title report is appropriate for your listing.

How the Preliminary Title Report Streamlines Closing

In all of these red flag situations, the title issues that may be revealed are solvable. But it may take some collaboration and creative problem-solving to find a satisfactory resolution, and both of these things can take time.

No one wants to hear that their closing has been delayed by a title issue. By ordering a preliminary title report, you can be confident that all title issues have been addressed and any delays to closing won’t be a result of the title.

Once a home does go under contract, the title company will simply need to perform an update to title. This process is very straightforward and easy; the title company will only have to search from the time the preliminary title search was completed to the current date. So if you completed the preliminary search in April and the home went under contract in August, the title company will only need to search four months of records. There is a nominal fee to update the title.

Listing a home with red flags doesn’t have to be scary – especially if you have an expert team on your side. At South Oak, we’re here to answer your title questions for any listing, and we can help you determine whether or not you need to order a preliminary title search before listing a home for sale.

Our title industry experts are skilled at identifying title issues and finding solutions to complex problems. Contact us with your questions, or order a title and schedule a closing today.