Jim Valentine: What to look for in title report
One of the most important components in a real estate transaction is one that is usually given some of the least attention. That would be the title report. Historically, it was called a preliminary title report, but has for the past few years been renamed and repositioned as a title commitment. The inclusion of the word commitment reflects the fact that they are now making a commitment to insure title, not just providing preliminary information.
Title insurance is just what it says, insurance on your title. Title insurance only covers items of record. If it isn’t recorded it isn’t insured. The report you get up front will show you what they have found of record, what will be exceptions to the title insurance policy. Read them carefully. If you don’t know what it is ask for a copy of the document that is being referenced as an exception. There are things that could be covered by an enhanced policy with extra riders at an extra cost, or by a survey, i.e. encroachments.
Read your commitment carefully. Most contain a lot of disclaimers as well as the right to change things for the insurance company. One such curious statement is that they only insure things of record up until the time of the commitment date. The commitment date shows a calendar date and time of day. Historically, title officers dated down the title just before recording. During the recent recession there were areas that were months behind in their recordings. You could record one day, but it wouldn’t show in the record for months. At one time Las Vegas was six months behind. What that allowed was for people to get new loans, transfer ownership, and other shenanigans that ended up clouding the title. That is when the commitment practice came in and they are only committing to the date of the policy which can be three weeks or more before you actually close. They will tell you that they date it down, but there is a gap that is not covered.
Another potential loose end is the proposed insured, the buyer or borrower. It is listed in schedule A of your policy. If there is a change in the lender or buyer/borrower then they must be added to the policy per requirements in schedule B, part I. Schedule B, part II is where things get good. This is where things are listed that will be exceptions, or that are exceptions that will be removed if cleared to the satisfaction of the company. You will not get insurance on your mineral or water rights even if you know they are intact.
Sometimes old documents hang on in the title. Some are correct in being there while others shouldn’t be. An example of the latter are most Nevada state patents. Most were eliminated by the Legislature but some title officers will leave them in. If you find something that isn’t correct in your commitment ask to have it removed in an amended pre. Better to get it out now than to have a bigger problem if you end up having a claim on your policy. Old CC&Rs can be dicey if they don’t specify an expiration since there is a chance the owners could extend the term of the CC&Rs by a vote. Hard to argue that one out of a policy. When you are asking for things to be taken out you are asking for a judgment by the title officer that will be made with the risk vs. return mindset. What are their chances of having a claim on that item?
Title claims are rare, but they do happen. It is important that you know what your expectations of the property are and that you are protected in case of a shortfall in the title. Remember, the land is what it is subject to zoning, CC&Rs, and other rules and regulations, but good title is essential before everything else. Title reports aren’t always accurate so read them carefully and make sure that your report is correct. You might have the right to arbitration instead of litigation depending on your policy which could make your action on your claim more affordable.
Title is a vital, but often misunderstood component of real estate. Make sure you and your agent read your title report.
When it comes to choosing professionals to assist you with your Real Estate needs… Experience is Priceless! Jim Valentine, RE/MAX Realty Affiliates, 775-781-3704. firstname.lastname@example.org