Among the dozens of records that serve to inform or disclose to the buyer significant knowledge about the property, the title report is one of the most important. It documents ownership, vesting, and detail regarding anything recorded against the home, such as liens, encroachments, or easements.
The title company compiles the report from a search of county records to issue title insurance, and any liens against the property are listed as “exceptions” to a title policy.
Here are three important pieces of the title report you should review carefully.
The legal description
The legal description is everything you won’t see in any real estate agent marketing or advertising. It’s the written description of the property’s location and the boundaries of the property in relation to the nearby streets and intersections.
In the case of a condominium or planned unit development (PUD), the legal description will include the property’s interest in any common areas, exclusive or non-exclusive easements, and details on any parking or storage that conveys with the property.
Here’s an example of a legal description from a preliminary title report of a property:
“Beginning at a point on the Westerly line of Fifth Avenue, distant thereon 250 feet Southerly from the Southerly line of Balboa Street; running thence Southerly along the Westerly line of Fifth Avenue 25 feet; thence at a right angle Westerly 120 feet,” and so on.
Legalese? Absolutely. But it’s precise, and necessary.
Property taxes always show up as the primary “lien” on a title report. A property cannot be transferred to a new owner with outstanding property taxes due.
As the top lien, the report will indicate whether taxes are due or paid in full. Taxes must be settled before any debt holder gets paid.
Mortgage liens are generally listed directly below property taxes, and they’re always ordered first, second, and third. The largest lien holder generally takes first position.
When a sale closes, the liens must be paid in the order that they appear on the title report. In the case of a short sale, there are not enough proceeds from the sale to pay off the property taxes and all of the lien holders. So one or more lenders will get “shorted” by the amount they’re owed. In order for the sale to close, the lender must agree to the short payoff.
Though this list is in no way exclusive, there are a variety of other items that could show up on a title report outside of taxes and loans.
Easements. If another property owner has access to the property via an easement, it would be recorded on the title report. This stays on the report until both parties agree to remove it. The title company can pull the original easement agreement for review.
CC&Rs. In the case of a condo or PUD, there are Covenants, Conditions and Restrictions (CC&Rs), recorded against the property. Any new buyer purchases subject to the rules and regulations documented in the CC&Rs. This is why it’s important for potential buyers to pull these from the report and review them. Once you’re the owner, you’re subject to those rules.
Restrictions, historic oversights, planning requirements. From time to time, there will be items on the preliminary title report that aren’t run of the mill. If the home is located in a historic district and therefore subject to the rules and restrictions of that community, it will show up on the title. In this case, if there are restrictions about changing the facade of a house or requirements that facade alterations comply with a local historical oversight committee led by the local planning department, a potential buyer needs to know this.
The last word
As a potential buyer, you and your agent or real estate attorney should scrutinize the preliminary title report. You want the title to be delivered as clean as possible.
If the property is subject to special items, or there are issues on the title that would affect your homeownership, you need to know and understand them thoroughly before you close.
Check out our Home Buyers Guide for more home shopping tips and tools.
- 3 Ways to Research a Property Online
- Sale Pending: What Does It Mean & Should You Make an Offer?
- Home Buyers: 5 Things to Know As You Wait for Closing Day
Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.
Originally published March 22, 2012