Identifying Red Flags on the Preliminary Report

By Fremont Real Estate Agent - September 26, 2022

Identifying Red Flags on a Preliminary Title Report

Here are a few things to look for on a Preliminary Report that might cause problems prior to closing:

INCOMPLETE OR INACCURATE LEGAL DESCRIPTION

The legal description on the title commitment should always be compared to the legal description in the purchase and sale agreement. This ensures all property being conveyed has been included and thereby covered in the preliminary title commitment and forthcoming title policy.

OUTSTANDING DEED(S) OF TRUST

Deeds of Trust which were paid off, but not reconveyed, will require a reconveyance from the trustee or a court-ordered satisfaction to remove it from the record. In certain situations, with proof of payment and indemnity, the title company may insure around these encumbrances.

TAXES AND ASSESSMENTS

Look for an exemption or classifications designated that would change the tax amount as a result of the sale or loan, such as a Senior Exemption or Forest Land designation. The tax rate may change for the buyer upon transfer of ownership, so be sure to discuss this with the buyer.

ANY PENDING CIVIL OR CRIMINAL ACTIONS

A civil action affecting real property will generally have to be dismissed or settled before title to the land can be insured. A pending divorce may not need to be finalized for a sale or loan to close, however, there may be special requirements. A probate may require special handling. Please check with your Chicago Title Escrow Officer for details.

JUDGEMENT AND LIENS

Judgements and Liens may be eliminated with an identity affidavit if they do not affect the proposed insured. If they do affect the proposed insured, but have been paid and not satisfied, a release may be recorded or filed to remove these matters from the record.

IMPROPER VESTING

If the person signing the listing agreement is not identified as the vested owner on the title report, look for a real estate contract as an exception. If none, check the legal description to confirm it is the same description as in the purchase and sale agreement.

JOINT USE

Driveways, party walls and access easements may require a joint maintenance agreement by the lender. The title commitment will show the agreement if one is recorded.