There are several things that go along with the process of purchasing real estate, whether it’s for personal or investment purposes. Reviewing a property profile report and title insurance is an important and necessary part of the process.
Let me explain what a property profile report is and why it’s important. A property profile report is a preliminary look at the financial and ownership status of a property. I highlighted the word preliminary because there is a key difference between a preliminary title report (also known as a non-insured report) and a “full coverage” title report. We’ll cover the differences later in this article.
A property profile will help you determine three things:
- Who the legal owner of the property is and do they have the right to sell the property.
- The loans and liens that exist on the property
- The restrictions related to use of the land
Let’s look at each element in a little more detail.
Legal ownership of the property: The property profile will specify the current owner of record. This will take into account any quit claim or interspousal deeds that have been recorded since the current owner (s) purchased the property. If you are purchasing the property through an active listing, then the agent or broker should have made sure that all parties on title have signed the listing contract. This will assure that title can be transferred. There are exceptions. For example, in a probate situation, the owner of record can’t sign a contract or the deed so it will have to be done by the PR who most likely isn’t on title.
Outstanding loans and liens on the property: These can consist of many things; mortgage(s), unpaid taxes and mechanic’s liens. A mechanic’s lien is a legal process to ensure that a contractor gets paid for services. These loans and liens will have to be paid before title can be transferred. There’s an exception in the case of a short sale; the lender can agree to clear the mortgage even if it’s not paid in full.
Restrictions and Covenants: An easement is an example of a restriction. An easement is a right to use the real property of another without possessing it. Common examples of easements include utility poles, shared driveways, fences, access ways, or utility access to name a few. A “real covenant” can also be a kind of restriction. A real covenant is a promise to do something with the land (build a gate) or not to do something (not use the land for public events). A real covenant consists of two elements, the burden and the benefit. The burden is defined as “the promissor’s duty to perform the promise.” The benefit is defined as “the promisee’s right to enforce the promise.” When the property is sold the real covenant can remain. So the new owner can be forced to honor the previously made real covenant.
A property profile is different than a “full coverage title search.” The same company can issue a property profile as the full coverage title report. The difference is that the profile is non-insured where as the full coverage title report is created as documentation for title insurance. So any information off the property profile is not guaranteed.
There has been litigation in the last few years related to the non-insured often free reports that investors have been given and use when purchasing foreclosure properties. These 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.”
Read more about the reliability of property profile reports.