Business Management

Reading the Title Report Can Save You from a World of Trouble

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I cannot underscore enough the importance of reviewing a preliminary title report when taking a short sale listing or at the beginning of the home buying process. A clear title is required in order to transfer the property. And, it's not just mortgage liens that can appear on title; there are other kinds of liens that pop up as well.

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Although I have been known to scream this suggestion from rooftops, thereare a few agents who prefer not to heed my advice or who have not read my posts. Here I will share an anecdote with a moral. See if you can ascertain the moral, based on my story.

One of my Realtor® friends in California contacted me one week prior to a Trustee's Sale (foreclosure sale) about a listing that he had just taken but for which he had no offer.

“Melissa, Can you postpone the sale?” he said.

“Well, it is going to be tough, especially if you are using a few specific lenders who are not really in the mood to postpone sales last minute these days. And, of course, in order to do that, I’d like to have a complete short sale package . . . with a purchase offer. With only one loan, we might be able to get this thing done successfully.” I responded.

“We’re in a hot market right now,” he stated. “Maybe I can pull it off.”

So, a few days later, Mr. Realtor® sent me a sub-par short sale package which we submitted and, by a stroke of luck, we were able to get that sale date postponed. My staff contacted Mr. Realtor® to ask him for a copy of the preliminary title report (which he had not yet ordered).

We received the report today. There are four (not one, not two, not three) liens on this property. The first lien (which was the postponed foreclosure), a second institutional lien that the seller claims he knows nothing about, a third lien by a private person, and an abstract of judgment.

In most short sales, the first lien holder will only offer money to other institutional lien holders. So, those in subsequent position are probably going to be out of luck. Who knows if this short sale will ever close? It will certainly be a challenge. However, it would’ve been nice to have more information about the chain of title prior to taking the listing. And, if you were the buyer on this property, wouldn’t you like to understand the reality of the purchase (namely, that it may never happen)?

While it is always nice to try and help friends, neighbors, and clients out of a rough spot, there are certain transactions that quite possibly are not meant to be. This might be one of those transactions.

The moral of the story . . . you probably already get it:

  • Order your preliminary title report when you take your listing.
  • When purchasing a property, check out the title report as early in the process as humanly possible.

Photo: flickr creative commons by Walt Stoneburner

    Jim Phillips
    Replied almost 9 years ago
    “Here, there be Dragons:” Early on, I learned the hard way to take a good, hard look at the “Matters” referred to in the Exceptions section of the prelim. One item innocently referred to a document, no other details. Only by luck did I discover prior to my clients removing their contingencies that the HOA had granted the owner limited right to the use of 12′ of the common area, even allowing them to fence it in. Suffice it to say, given the buyer’s intent to install a pool, there would have been hell to pay aka the Broker to pay when the new owner discovered they couldn’t install a pool without encroaching on the common area inside their fence line. There were no easements identified on the plat map that would prevent the installation of a pool when we reviewed the plat map at the county planning department. Basic Rule: ensure the Title Officer provides a clear explanation of all Exceptions to your clients.