What is a property profile report? It is a preliminary look at the financial and ownership status of a property. It is useful to help you determine things like:
- Is the owner of record the person who is signing all the documents for the sale of the property?
- What are the balances of the loans that encumber the property?
- Are there other liens or judgements against the property?
- Does the legal description match what you are buying, for example number of beds and baths?
I first addressed this issue of property profiles back in March of 2013. I would suggest you take a quick look at that article because it clearly defines the difference between a preliminary report and a full coverage title report.
Now I’d like to spend a little time talking about the reliability of these reports and how they can affect your real estate investing.
When buying off-market properties, we need to have the assurance that the person who is selling us the property (signed our contract) has the legal right to sell the property. So ensuring the legal authority to transfer title is one of the reasons we need to have a reliable property profile. Other considerations are outstanding loans and liens on the property. We need to be assured that all loans and liens have been accounted for. This has the biggest effect on the investor when they are negotiating for pre-foreclosure or foreclosure properties. Also, other kinds of liens, such as HOA liens could be very costly if not addressed before a property is contracted for.
We supply a tool to our real estate students called the DEAL Board that allows them to do preliminary title searches. At the bottom of the report it states “deemed reliable, but not guaranteed.” Why is this? Because until a complete property search and abstract of title is completed, title can’t be guaranteed. If title can’t be guaranteed, title insurance won’t be issued. The reports we offer are of a preliminary nature. Even if you go directly to a title company, know that if the report is free, it is likely preliminary in nature.
There has been litigation in the past as it related to the non-insured, often free reports that investors have been given and use when purchasing foreclosure properties. Investors have relied on these reports to document all of the liens against the property. What has been happening is that after property has been purchased (often on the courthouse steps) the investor finds out that there are additional liens on the property. The investor is now responsible for those liens. Investors have tried suing title companies for misinformation. The cases don’t have merit because the title company never provided a guarantee as they do with the “full coverage title search.”
In fact, at the 2014 Annual Convention for the American Bar Association there was a whole session on recent cases regarding title insurance issues, which you can review by clicking on the link.
The most important thing we can take away is that before you finalize the purchase of real estate, whether it be from the seller directly, an auction or even a conventional purchase, a full title search and title insurance needs to be issued.