Why Should I Read My Preliminary Title Commitment or Title Report?

Per E. Oscarsson, Edmonds Lawyer

If you are buying or selling real estate, whether residential or commercial, the transaction will most likely include a requirement for the seller to provide the buyer with title insurance. The first step in that process is to get what is usually referred to as a preliminary title commitment or a title report. It is important to read it because it can have a significant impact on the transaction.  For example, the buyer often has a limited period of time after receiving the report in which to object to matters affecting title to the real estate and to communicate those objections to the seller and demand that they be removed. For the seller, the nature of the title issue objected to by the buyer, which the seller may have to resolve, could result in delay in closing the transaction or termination of the transaction if the issue cannot be resolved in a reasonable time. Some exceptions may not be removable. For example, the easement for a utility line that still exists in the place described in the document granting the easement.

What are you looking for when you read the report? First, is the seller shown as vested in title? If the seller is not vested in title, they can’t deed the property to the buyer; they can’t close the transaction. Maybe the seller’s name is misspelled or the seller is known by a different name than when they acquired title to the property. Second, does the report identify the correct property? Does it show the correct tax parcel number for the property? Does it contain the correct legal description for the property? Third, what are the exceptions to title? This could be unpaid real estate taxes, mortgages, deeds of trust, easements, assessments, liens of various kinds, or judgments against the seller, to name a few. Some of the exceptions may not be much of an issue. For example, if there are unpaid real estate taxes, they would typically be paid out of the sale proceeds at the time of closing of the transaction. As a result, they would not affect the property after the closing of the transaction. The same is true for a current mortgage or deed of trust. But, the report could show a mortgage or deed of trust that had been paid in full many years earlier; the fact that it was paid off would not be reflected in the report. The seller would have to take steps to get the mortgage or deed of trust removed from the report, something that should have been done when the loan secured by the mortgage or deed of trust was paid off. That could be expensive and time consuming to do and that could have a significant effect on the ability of the seller and buyer to close the transaction. 

What does all of this mean? It means the parties should carefully review the preliminary title commitment or title report and the documents, if any, that support the exceptions to title and investigate them or have a person experienced in dealing with such issues investigate them. It is possible that a legal description of the property being purchased is incorrect and the error occurred many years earlier and was never caught, even in a series of transactions involving the real estate.  It is possible that an exception does not actually affect the real estate involved in the transaction. For example, maybe the document that supports an exception shown in the report shows a tax parcel number and/or a legal description of the property affected by the exception. But what if some of the numerals in the tax parcel number were reversed or the legal description in the exception document does not match the legal description of the property being purchased? Maybe the exception affects the neighboring property or a property miles away.

To learn more about Preliminary Title Commitment or Title Report, please contact Beresford Booth at info@beresfordlaw.com or by phone at (425) 776-4100.

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