A title is a legal document listing the history of ownership of a home. After the buyer and seller have reached mutual acceptance, an attorney or title company will review the home's title to look for any problems that might prevent the home from being legally sold. The results are written up for the buyer in a preliminary title report.
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 instance, suppose a home's seller is divorced, and his ex-wife is listed as a co-owner of the property. However, the man is attempting to sell the home without consulting her. A title review will uncover this issue, and the seller will not be allowed to sell the home without the his ex-wife's consent.
What issues should I look for on my title report?
Your attorney or title company will be able to provide guidance on your specific report, but in general you want to look for these types of issues:
- Liens: Also known as an encumbrance, a lien is a legal claim of ownership listed on the title of a home. When you get a mortgage, your lender will have a substantial lien on your home, and will continue to have a lien on your home until your mortgage is paid off. In fact, anyone owed money by a homeowner can file a lien on a home, including utility companies, city tax departments, or contractors.
- Easements: Easements are a right to use another person's land for a specific purpose. For example, Bill may grant his neighbor, Ted, an easement to cross his land to access the road. Ted would have no right of possession, and could not build or plant on the land. Other common examples are easements granted for the placement of utility poles, water lines and sewer lines. An easement will not necessarily prevent a home from being sold, but it may give the buyer a reason to back out of the purchase, since it can restrict what the buyer is allowed to do with her new property.
- Encroachments: Fences or other parts of neighboring lots that cross property lines. For example, Bill may have a fence that extends onto Ted's property. If Ted tries to sell his home, the new buyer will learn about Bill's "encroaching" fence on the title report.
How do I clear up problems with my title report?
You'll need to work with your agent, the seller, and the attorney or title company that performed the title review. If you have questions about your title, or you find issues that might be deal-breakers, talk to these people immediately -- you only have a few days after receiving your report to deal with any issues.
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. Often, issues can 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.
What if I want to back out of the deal?
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 and/or attorney immediately to invoke your title contingency.