When buying property, you’ll encounter a lot of important documents. One of the most critical is the title report. Many buyers only give the title report a cursory glance. But it’s important to understand how a title report plays an essential role in the real estate process.
Let’s address some of the most common questions that come up about ‘Title’ in the home buying process:
What is “Title”?
“Title” refers to the legal rights of ownership. If you are “on title” to a property, then you are a legal owner and can control the use or disposal of the property. Title or ownership is represented by a legal document such as the deed.
Who Issues the Title Report?
Once a buyer has an accepted offer, a copy will be sent to the escrow/title company to open escrow. Once escrow is opened, the title company will perform a title search. This will allow the buyer to know that the seller of the property has legal ownership and has the right to sell it.
The title report also includes a commitment for title insurance. Title insurance is required by most mortgage lenders before you can move forward with a loan. It protects the lender’s interest in the property against any title issues that were missed by the title search and is in effect until your loan is paid off or refinanced. The title commitment is the title company’s commitment to issue the title insurance. The cost of the insurance is included in the buyer’s closing costs.
What is Included in the Title Report?
The title report may contain important disclosure issues such as:
- CC&Rs and other deed restrictions
- Access problems
- Whether the property is in the vicinity of a military airport
- Prior leases
The title report may also reveal problems that could delay the close of escrow such as:
- Court orders or divorce decrees
- Probate issues
- Judgment liens
- State & federal tax liens
- Environmental liens
- Other matters of record affecting title
It’s important for buyers to be aware of any encumbrances on title. A lien is one type of encumbrance and is the legal right of someone other than the owner to force the sale of the home to satisfy a debt of the owner. A mortgage is a common type of lien. The seller will have to pay any and all liens against the property from their proceeds at closing.
Buyers should also carefully read the Covenants, Conditions and Restrictions (CCRs) for the property. Most title reports will include a link to this document. CC&Rs impose restrictions on how an owner can use the property and are typically governed by a Homeowner’s Association (HOA). If your intention is to raise chickens in your back yard, better check the CC&Rs or the HOA to see if that’s allowed.
Easements are another item you should investigate. An easement is the right to use someone else’s property for a specific purpose. A common type is a utilities easement. This gives the utility provider the right to maintain lines over or under your property. They have the right to come onto your property as needed to work on the lines. The good news is that once done, they have to restore your property.
The title report is divided into several sections: Schedule A, Schedule B Requirements and Exceptions, and Exceptions and Exclusions.
Reading a Title Report
Schedule A: This part of the title report states the date of the title search, the amount of title insurance coverage, the name of the insured, and the legal description of the property.
Schedule B (part 1) – Requirements: This section lists what things must be done before escrow can close. If a requirement can’t be met it can delay or prevent the closing. Common requirements include payment of property taxes, HOA assessments, recording a release and reconveyance of the deed of trust currently on the property, recording the new deed & the deed of trust securing the new loan.
Schedule B (part 2) – Exceptions: This is an important part of the report because it lists the items that the title company won’t insure. It lists the specific exceptions from coverage that the title company discovered during its title search.
Exceptions/Exclusions : There are standard exclusions from the title insurance policy and include:
- Any law, ordinance or governmental regulation relating to the use of the property
- Any governmental police power, unless recorded
- Rights of eminent domain, unless recorded
- Defects, liens, encumbrances, adverse claims, or other matters agreed to by the buyer
- Claims arising from bankruptcy or other creditors’ rights laws.
The Bottom Line
It’s important for you, the buyer, to be aware that a title report will be sent to you directly by the title company, and that you review it carefully. If you have any questions about what’s contained in the report, be sure to contact your real estate agent and/or your escrow officer for explanations.
You, as the buyer, have five days after receipt of the title report to provide notice to the seller of any items disapproved. So, if you really want to have those chickens in your back yard and you discover through reading the CC&Rs provided in the title report, that you won’t be able to do that, you’re allowed five days to cancel the contract and move on.
Contact the Donnelly Group
If you are considering buying a home in metro Phoenix, the Donnelly Group has the expertise to help you all the way through your purchase. Please don’t hesitate to contact our team at 480-792-9700 or by email, we’d love to help.