What is Title Insurance ? Most real estate sales transactions involve title insurance. The title insurance policy is designed to insure that the seller has the authority to sell the property to the buyer and that there are no liens or encumbrances against the property. It is customary for the Seller to pay for the title insurance policy that will protect them and for the Buyer to pay the for the title insurance policy that the lender will require.
Selecting a Title Insurance Company. AM Best rates insurance companies based on their financial stability. Research your title insurance company and compare their ratings and the cost they will charge for a title insurance policy.
What is a Preliminary Title Report? A preliminary title report is prepared by the title insurance company you select. It will identify the legal owner of the property as well as any liens, easements, CC&Rs or other encumbrances against the property. What is critical to understand, however, is that the items listed on the title policy will not be covered under the policy that is issued. Therefore, if there are any items that are listed on the Preliminary Title Report that are not acceptable to the Buyer, the Buyer must object to those items. Keep in mind that the Preliminary Title Report is simply a list of the documents that encumber the property; you will not know exactly what is in those documents unless you receive copies of them. We are experienced at evaluating preliminary title reports and title documents and can quickly and efficiently review these reports for our clients.
What to Look For on the Preliminary Title Report ? Any loans or liens that the Seller placed on the property need to be removed before the close of escrow. If the sales price for the property is not large enough to pay off these liens and encumbrances the property is “under water” and the Seller will need to put additional funds into escrow or the lien holders need to agree to discount their liens. Easements that appear on the preliminary title report should be evaluated and the buyer needs to determine if they are acceptable or not. Sometimes there are easements that will cut through the center of a property or prevent certain uses of the property. You also want to make sure that your purchase and sale agreement is signed by the owner that appears on the Preliminary Title Report or your contract may not be enforceable.