Part of the home-buying process includes a title company preparing your preliminary title report. This report is important for both buyers and sellers, but for buyers, in particular, a title insurance policy provides information that the seller has the right to sell the property and shows all the rights to the property the buyer is buying.
In this post, we’ll cover:
Why do I need Title Insurance?
What goes into a Title Search?
How to Read the Preliminary Title Report
What is Title Insurance?
Title insurance is a form of insurance that provides coverage for title defects that could affect your homeownership.
Examples of title defects can include errors in public records, unknown liens, forged signatures, survey or boundary issues, judgments, taxes/levies, and anything else that could cause prior or current deeds to be unenforceable.
Unlike other forms of insurance, the original premium is a one-time cost as long as you own the property. There are no annual payments to keep your policy in force. The seller pays the fee for title insurance while you as the buyer pay for the title policy that insures your lender.
Why do I need Title Insurance?
Sellers provide the title insurance policy to buyers to show that the property is free and clear of title defects.
If buyers are financing their home purchase, they will be providing a title insurance policy for their lender.
A title policy verifies:
- the seller’s right to sell the property
- discovers any defects or rights that burden a property
- shows all the rights to the property the buyer is buying
- insures the homeowner against found and hidden risks
If problems arise, the title company, at their expense, will defend the policy and pay valid claims and legal fees. Without title insurance, the homeowner would be fully responsible and accountable against these defects.
What goes into a Title Search?
Title companies will search all available public records concerning a property. As an example, they will look for:
- Public records
- Liens
- Judgments
- Court Records
- Past Mortgages
- Unpaid taxes, levies and/or assessments
- Easements
- CC&Rs (conditions, covenants and restrictions)
- Land restrictions, zoning, etc.
How to Read the Preliminary Title Report
Your preliminary title report is broken down into four sections. Title companies will follow this layout however some title companies will label their sections a little differently.
SCHEDULE A – information
This section shows the names of the buyers and sellers, the address of the property, the policy to be issued and at this point, the lender’s name may not be included here yet.
A note about the premium listed. You’ll see the Homeowner’s Rate that is listed. This is what the sellers pay for the buyer’s title policy. The policy the buyer will be buying for their lender may be yet to be determined and the dollar amount will be updated but expect that rate to be less expensive than the seller’s rate.
SCHEDULE B – exceptions
The items listed here under Schedule B are not insured on the title policy. These include things that other parties have an interest or control of like a utility easement.
SCHEDULE C – requirements
The items listed here are items that must be resolved prior to closing.
This also is the heart of the policy that most buyers are interested in, especially the CC&Rs (neighborhood rules). Be sure to click on the active link to open and review.
You’ll also see other items such as the owner’s current mortgage that needs to be paid off, unpaid taxes, marital status, and if there is a spouse that needs to participate in the sale.
Easements – These are very standard and common. Most easements are contained in the street and are usually for utilities. Some easements run over portions of the property for things like maintenance of side yards, access to common areas, etc. Some easements that run on your property could affect future improvements.
Agreements – these commonly take the form of road maintenance agreements and will bind the owner to certain actions.
Court Orders/Judgments – not very common but typically are child support judgments against the seller. Any order or judgment is a red flag and can take weeks to resolve.
Bankruptcy – all open bankruptcies require the debtor to get permission from the court to sell the home. A letter from the bankruptcy trustee will be required in order to close on the property.
You’ll also find a plat map at the end of the report.
SCHEDULE D – disclosures
Any disclosures from the title company are provided here. They usually include what a title company does with your information and if there are other parties who would collect any part of the insurance premium.
Conclusion
Title reports can be overwhelming to review. For buyers, I suggest focusing on Schedule C which will have the most pertinent information about the property.
I also review your title report, but it is important you take the time to review it and ask any questions you may have.
Be sure to check out my ultimate buyer’s guide here.