If you are purchasing property, one of the documents you should obtain or receive is a title report. A preliminary title report is often provided after you and the seller have reached an agreement but before you close.
While you can prepare your own title report, you may be better served by hiring a professional who knows all the ins and outs of title searches, including the proper interpretation of courthouse documents. The title report tells you all the pertinent facts about the property, including whether or not the person selling it can do so legally.
Read on for the nitty-gritty of title reports.
Title Report - An Overview
A title report, also known as a title commitment or binder, is the document containing the results of the title search, which is required by most mortgage lenders and mortgage insurers. It is sometimes called a title commitment because it is a promise to issue a title insurance policy. The report contains the information you and the title insurance company need to make its decision.
- The parcel of land in question called the "estate"* or the interest covered.
- The owner of record for the estate or interest.
- The legal description of the parcel of land.
- Any requirements or notes about the property.
- A listing of easements, liens, encumbrances, and other information affecting the title to the property as of the time and date of the report.
*The term “estate” expresses the degree, nature, quantity, extent, or duration of land interest.
The American Land Title Association provides a standardized format for the report that many agencies use. The report typically consists of a cover letter with a paragraph stating that no liability is intended under the preliminary report and shows what material should be requested if the customer wants the assumption of liability before the title insurance policy is issued.
Following the cover letter are Schedule A and Schedule B. Schedule B may be further split into sub-sections.
The Origin of the Title Information and How to Obtain a Title Report
The information in the report is from a public records search; most or all of the records are located at the courthouse located in the same county as the parcel of land you are purchasing. It contains everything you need to clear a title in preparation for transfer.
What the report does not tell you is whether the property can be marketed or insured as is. You and the title insurance company make that decision after reviewing the report.
You can create a title report yourself, but only DIY the title search if you are completely confident in your ability to interpret courthouse documents. You need to gather a number of documents via a physical search during a visit to the courthouse, or you can search online using a service such as CourthouseDirect.com.
- Gather all the records you already have about the property.
- Visit the appropriate courthouse and search the property deeds (or do so online).
- Establish a chain of ownership.
- Visit the county assessor for additional assistance in finding the actual title, if needed.
- If you still can’t find the records, find a reliable title officer or agent to help.
If you do not search courthouse records for your job, you are better off hiring a title officer to perform it for you.
Another option is to purchase a title report from a title company. Alternatively, it may be provided by the listing agent within a few days of agreeing to buy the property from the seller. The report given to you by the listing agent is considered a preliminary title report. A complete report documents more than just the previous owner information.
A title report may take as little as a few days to a couple of weeks depending on the skill of the person or firm performing the search. You, the buyer, typically pay for the report with the price rolled into your closing costs. Usually, it costs around $100 or so.
Why Do You Need a Title Report?
Besides ensuring the entity selling the property has the legal right to do so, you learn other details about the property.
- You can discover vesting interests in the land.
- You identify the details of any liens.
- You identify encroachments, easements, and rights-of-way.
- You learn if the property title is free of defects, which can be anything attached to the property that affects how you use it, or which could decrease its value.
Once you receive the report, read it, and act on any problems quickly. You may have only ten days to cancel the purchase contract or negotiate terms of the transaction.
Reading Your Title Report
The three most important sections of your title report are the legal description, the part about property taxes, and any mentions of mortgage liens.
The legal description may be described in one of several ways. Each method of characterization is unique and requires specific expertise to understand.
- Lot and Block
- Metes and Bounds
- Partition Plats
Another term you may encounter defines the type of estate or land interest an owner can have. The highest type is called “fee simple,” meaning the title is freely transferable and inheritable, and the owner is entitled to possession legally. In other words, the title is not clouded.
What’s In Schedule A?
Schedule A contains the details of the land and owner.
- The commitment date.
- Which policies are to be issued by the homeowner or lender.
- The type of land interest, such as fee simple or leasehold.
- The full names of the current owners.
- The legal description of the parcel.
What’s In Schedule B?
Schedule B lays out what will and will not be covered by title insurance. It may be broken into sections. For example, Schedule B-I may contain the requirements and an explanation of the steps to meet them. Schedule B-II contains exceptions and exclusions.
Endorsements, Exceptions, Restrictions, Reservations, Exclusions, and Encumbrances
An endorsement (also called an elimination) can waive an exception by providing a release, affidavit, quitclaim deed, waiver, or another legal document.
A reservation is a line item for minerals such as gas or oil.
An exclusion is an exception that cannot be removed by an endorsement because it is beyond the power or scope of the title insurance underwriters, there is a conflict with a higher authority or with the law, and it may include rights either reserved or removed by the government, including taxation, police power, escheat, and environmental protection.
Anything that doesn’t fit into the above is called an encumbrance. Encumbrances are all other liabilities inheritable at closing from contractors’ liens and deeds to trusts, judgment liens, and lis pendens.
A title report is your protection against unforeseen issues with a parcel of land you wish to buy. It contains the results of the title search, including the legal owner, the legal description of the property, and any problems clouding the title such as liens and encroachments.
You also learn about liens that the current owner has not paid. Most purchase agreements allow you to cancel the contract if serious issues are found. Smaller issues may be negotiable.
For your peace of mind, and because a title insurance company insists, get a title report before closing.