Reading and Understanding Preliminary Title Reports in Real Estate Transactions
Real estate transactions involve a multitude of documents and paperwork, and one critical document that plays a pivotal role in the process is the Preliminary Title Report. It's an essential piece of the puzzle that can impact the outcome of a property deal. In this blog post, we'll explore what you need to know about Preliminary Title Reports and how to read them effectively.
Understanding the Preliminary Title Report
Before we delve into reading a Preliminary Title Report (PTR), let's first understand what it is:
A Preliminary Title Report is a document generated by a title company that provides an overview of the current state of a property's title. It includes information about the property's ownership history, any existing liens or encumbrances, and conditions that must be met for the title company to issue title insurance.
Key Components of a Preliminary Title Report
Property Description: The PTR begins with a detailed description of the property, including its legal description and physical address.
Current Owner Information: It lists the current owner of the property and their vesting (ownership) interest.
Exceptions to coverage
These items are NOT insured in the title insurance policy and remain on the title for all future owners unless they are cleared through title.
Liens and Encumbrances: This section outlines any outstanding liens, mortgages, or encumbrances on the property. Common examples include existing loans, unpaid property taxes, or judgments against the current or previous owners.
Easements and Restrictions: The PTR will note any recorded easements or restrictions that affect the property. These could include utility easements, access rights, or restrictive covenants. In Oregon, these show as exceptions on the title report.
Title Insurance Commitment: This section outlines the conditions that must be met for the title company to issue a title insurance policy. It typically includes requirements like the payment of outstanding liens or the removal of specific encumbrances.
Reading and Interpreting a Preliminary Title Report
Property Information: Start by verifying that the property description matches the property you intend to purchase. Ensure that the legal description is accurate.
Ownership: Check the current owner's name and confirm that it matches the seller's name on the purchase agreement.
Liens and Encumbrances: Pay close attention to this section. Look for any outstanding debts or obligations associated with the property. It's crucial to understand what financial burdens you may inherit as the new owner.
Easements and Restrictions: Review any easements or restrictions listed. Consider how they might impact your planned use of the property. For example, if there's a utility easement, it may restrict where you can build structures.
Title Insurance Commitment: This section outlines the conditions that must be satisfied before the title company will issue title insurance. Pay attention to any outstanding issues that need to be resolved before the transaction can proceed smoothly.
What to Do After Reviewing the PTR
Consult with a Professional: If you encounter any unfamiliar or concerning information in the PTR, consult with a real estate attorney or a title company representative. They can provide guidance on how to proceed.
Negotiate with the Seller: Depending on what you discover in the PTR, you may need to negotiate with the seller to address issues like outstanding liens or unresolved title problems.
Proceed with Due Diligence: The PTR is just one part of your due diligence process. Continue with other inspections and investigations to ensure you're making an informed decision.
Conclusion
In a real estate transaction, the Preliminary Title Report is a crucial document that provides insight into the property's ownership history and any encumbrances or restrictions. By carefully reading and understanding the PTR and seeking professional advice when needed, you can navigate the complexities of the real estate process confidently and make informed decisions about your property investment.