Every year, thousands of properties go on sale across the United States for a variety of reasons. While some are placed in the market by sellers, others are listed by banks or put up for auction. Although investing in properties can yield plenty of lucrative real estate benefits, it’s only possible if you understand the history from a preliminary title report.
Getting a preliminary title report is an essential part of any purchase because it explains the ownership history and outlines any potential problems that could arise when heading into closing. Smart investors always look for a report when researching homes to ensure their investment will offer an impressive return or ROI, no matter what they decide to do with the next addition to their portfolio.
What is a Preliminary Title Report?
The preliminary title report gives investors the first look into the property history. A brief report is usually provided with the history, which can give insight into any liens or other claims which could complicate the sales process.
A preliminary title report will show three critical points of information about a property for auction that can ultimately educate a purchaser’s decision. The report will show who owns the property, who holds a lien on the property, and if there are any outstanding taxes due. Without the report, a potential buyer could walk into problems they never anticipated, adding thousands of dollars to the price they did not expect.
Why You Need a Preliminary Title Report
While new investors may be wondering “what is a title report?” experienced real estate buyers understand how valuable a preliminary title report is. Doing diligent research on a future investment property can unlock long-term real estate benefits that can eventually lead to a steady passive income stream over time.
The preliminary title report alerts home buyers about any issues they may face under contract. This includes any liens placed on the home by homeowner’s associations or workmen who have completed work on the home, as well as the back taxes owed to local governments. In most situations, these costs cannot be financed as part of the home purchase, meaning real estate investors must pay these costs out of pocket. If they do not pay the costs, the transaction cannot be consummated and could lead to the complete collapse of the sale.
How to Get a Preliminary Title Report
Once an investor has identified a potential bank-owned home as an investment, it’s time to get the preliminary title report. There are two ways to get the report: through a public records search or through a title company.
If the title report is not included in the listing, investors can usually search the public records for the property history. In many cases, potential real estate investors can get a preliminary title report from the county recorder, county clerk, or county real estate office. While searching is free, getting a copy of the report usually costs a nominal fee. The fees vary from county to county, but the value that a report can provide far outweighs the price.
The other option to get a preliminary title report is by working with a title company. Although buyers will ultimately need a title company to do the title work and purchase title insurance, the title company will complete the same pre-purchase research as the buyer from public records. Once real estate investors understand how to obtain a preliminary title report, they can save hundreds of dollars by doing the work themselves.
Possible Problems Found by a Title Report
The most important reason to get a preliminary title report before placing a bid on any home is to identify potential complications to buying. The most common problems a report can identify are claims to the home, liens placed on the property, any back taxes owed, and the rules governing the land.
Seller’s right to the property: A preliminary title report can ensure that the seller has the right to transact on the property, either through a foreclosure sale or other terms. If another party puts a claim against the title, it may have to go through the courts before it can be sold.
Property liens: Several parties can put a lien against the home, including the mortgage company, the homeowner’s association, or even contractors who were not paid for completed work. The preliminary title report will show any active liens that will need to be resolved before the deed can change hands, letting investors plan for any issues.
Back taxes owed on the property: Before a title deed can change hands, local governments may require any back taxes to be settled. A preliminary title report will identify any liens based on tax obligations the buyer will need to pay before getting the keys, which could make a major difference in a purchase decision.
Easements: Some properties may have easement requirements, where others are allowed access for a variety of reasons. Getting a preliminary title report will identify easements and either allow the buyer to know about them ahead of time, or pull the original agreement to dispute it.
Covenants, Conditions, and Restrictions: Although rare, some properties may be governed by covenants, conditions, and restrictions (also known as CC&R). The preliminary title report will show all the potential concerns a new owner could face, including architecture restrictions, historic district requirements, or other rules looming over the property.
While investing in properties can yield several real estate benefits, it may also come with a number of frustrations. By pulling the preliminary title report as part of the due diligence process, investors can get an idea of the liens and limitations of a property, leading to an educated decision on whether or not it would be a productive asset in their portfolio.