What Your Title Reports Might Be Telling You
by Radian Title Services
Understanding a title report or commitment shouldn’t feel like interpreting a foreign language. While some sections may seem straightforward, understanding the components of your title report or commitment and what they mean, may help make a difference in the profitability of your investments. Here are some key sections that all real estate investors should know:
Property Description
This section tells you the boundaries of your investment property, as described in prior deeds in the chain of title. Consider obtaining a survey and otherwise taking the time to verify that the description matches your understanding of the property, and confirm that the dimensions align with what you’ve seen and what is described in the report or commitment. Discrepancies between the legal description and your expectations may signal boundary disputes.
Chain of Title
The chain of title shows the property’s recent ownership history. Unexplained gaps in title, short ownership periods, and deed types that seem out of place may be signs of potential issues. Pay particular attention to quitclaim deeds, which purport to transfer ownership without any guarantees or warranties about the title being transferred. Numerous quitclaim deeds in the chain could indicate attempts to quickly transfer problematic properties without liability. Gaps in the chain, a pattern of quitclaim deeds, or frequent ownership changes could indicate title issues or fraud attempts that warrant further investigation.
Liens and Encumbrances
Financial claims against the property are highlighted in this section, demonstrating those debts or restrictions that may come with your investment unless addressed in connection with the closing. Pay close attention to outstanding mortgages, tax liens, mechanic’s liens, or homeowners association claims, as unresolved liens could become your responsibility after purchase.
Easements and Restrictions
Easements and restrictions may limit your use of the property or afford rights to others with respect to the property, such as a right of ingress and egress. Carefully review utility easements that could affect development plans. Conservation easements, historical preservation restrictions, or covenants may also limit the property’s use. Extensive easements or restrictive covenants could significantly impact your investment plans and should be factored into your investment strategy.
Legal Issues and Judgments
A section listing pending court cases or legal decisions related to the property may also be contained in the title report or commitment. It can be a good idea to look for ongoing lawsuits involving the property, judgments against previous owners involving the property, or probate issues if the property was previously inherited. Unresolved legal issues have the potential to become your headache, so pay close attention to anything that might be included in this section.
Tax Information
This section includes property tax assessments and payment history, which can reveal potential tax liabilities and any outstanding balances with local authorities. Consider verifying that property taxes are up to date, looking for unusual spikes or drops in assessed value, and checking for any special assessments or upcoming tax changes. Tax liens from previous owners should be satisfied before closing, even if they weren’t disclosed initially.
Your Investment Edge
Mastering the art of reading title reports and commitments may be key to avoiding pitfalls and uncovering hidden opportunities. By understanding what others miss, you may be able to make more informed decisions in negotiations and identify potential opportunities that might scare off less experienced investors. Don’t let confusing reports hold you back from confidently investing. When in doubt, trust a reliable title company with experienced escrow officers, like Radian Settlement Services Inc., that will take the time to help you understand what your title reports are telling you.
The content presented is intended to convey general information and is for informational purposes only and does not constitute legal or accounting advice or opinions. An attorney or accountant should be consulted for specific information.
