What Is a Preliminary Title Report and Why Does It Matter?
A preliminary title report is one of the first things to hit the desk when a potential sale is on the horizon. Think of it
January 29, 2024
What Is a Preliminary Title Report and Why Does It Matter?
Aritas Mortgage Solutions
January 29, 2024
Contents
In December 2023, Barry Habib told Fox News that homebuyers should focus on getting their dream home as soon as possible instead of waiting for the interest rates to come down. It seems that this industry expert also believes that there could be an increase in home sales at least in the early months of 2024. More sales also mean more paperwork. You could be simultaneously churning out several preliminary title reports and it’s a task that requires attention to detail.
Suppose you help a couple sell a house. When the deal was underway, all seemed to be going well between them, until one day they filed for a divorce. Now, your deal is in troubled waters because there’s no clarity about the property’s ownership. This is the kind of situation everyone wants to avoid. Sellers and agents want to accurately present properties to avoid delays and legal issues. Buyers seek a clear picture to dodge surprises like tax or mortgage problems. Lenders won’t approve loans without checking the property’s title and title insurers won’t offer cover without understanding the property’s history and any potential issues.
What Is Preliminary Title Report & Why It Matters to Lenders?
A preliminary title report is one of the first things to hit the desk when a potential sale is on the horizon. Think of it as a sneak peek into a property’s past and present. When someone’s eyeing a house, they want to know it’s not carrying any hidden baggage. As a real estate professional, you want to see this report before greenlighting that loan. It gives you a heads-up on any ownership battles, outstanding debts or legal messes. Knowing the lay of the land helps you make informed decisions and avoids nasty surprises down the road.
Five Common Challenges Faced by Lenders in Title Examination
Conducting a thorough title examination can help reduce your closing time by allowing you to address the following challenges much sooner
- Hidden Title Issues: Unexpected liens, claims or ownership disputes demand extra attention and resources
- Legal Jargon: Understanding intricate details, restrictions and easements can be a headache for lenders lacking specialized expertise in real estate law
- Timeline Impact: Title-related challenges act as speed bumps, causing delays in the lending process and frustrating borrowers, real estate agents and lenders alike
- Closing Timeline Disruptions: Hiccups in title examination can lead to rescheduled closing dates
- Need for Expertise and Efficiency: A thorough title examination maze requires the expertise of efficient title professionals who can work within tight timelines (Find the right solutions with Aritas)
Title Reporting with an Outsourcing Partner
There are several stages of conducting a title assessment and it is typically a mortgage lender who is responsible for ordering the preliminary title report. Let’s take a quick look at the entire process.
Loan Application Stage
Once a borrower submits a mortgage loan application, the lender initiates the underwriting process to assess the creditworthiness of the borrower and to evaluate the property
Property Assessment
This is where the need for a preliminary title report arises. The lender wants to ensure that there are no outstanding liens, legal issues or other encumbrances that could jeopardize the lender’s interest in the property
Coordination with Outsourcing Service Provider
The lender coordinates with a trusted outsourcing service provider like Aritas to order a preliminary title report for the specific property under consideration
Title Research and Report Generation
The processing partner conducts thorough title research, compiling information about the property’s ownership history to provide a comprehensive preliminary title report
Review and Decision-Making
The lender reviews the report to assess any potential risks or issues associated with the property’s title. If there are significant title issues, the lender may work with the outsourcing service provider to address these concerns
Continued Collaboration
If the mortgage transaction proceeds, the collaboration between the mortgage lender and the outsourcing service provider may continue throughout the closing process to ensure a smooth and compliant closing
What Components of Preliminary Title Report are Taken into Consideration
Working with a title company is an effective way to assess various details of the property in the preliminary report. However, you must also be aware of the components considered to make informed decisions.
Ownership Information
Helps evaluate the current and historical ownership of the property
Issues to Avoid: Incorrect or incomplete ownership information, unresolved co-ownership disputes, undisclosed heirs or forged signatures
Legal Description
This outlines the exact boundaries and location of the property
Issues to Avoid: Inaccurate or unclear legal descriptions can lead to boundary disputes or clouded titles. Precise mapping and surveying are essential to ensure the property’s boundaries are correctly defined
Liens & Encumbrances
An important aspect of the assessment process, this helps identify any financial claims or restrictions on the property
Issues to Avoid: Unpaid mortgages, tax liens, judgments or other financial encumbrances can affect the property’s marketability. Thoroughly researching public records helps uncover any outstanding debts or claims against the property
Title Exceptions
A thorough examination of what the title insurance policy may or may not cover. It could include certain limitations or exclusions
Issues to Avoid: Undisclosed title defects or restrictions not covered by the title insurance can lead to legal complications. Make sure that any exceptions and addressing potential risks are clearly communicated
Easements & Restrictions
Identify any rights granted to others to use the property or restrictions on its use. This will help you stay out of legal disputes
Issues to Avoid: Unchecked easements or restrictions may limit property development or lead to disputes. Careful analysis of recorded documents and local zoning laws is necessary to understand and address any limitations
Covenants, Conditions and Restrictions (CC&Rs)
Meticulously scan all contractual agreements or limitations affecting the property, often found in planned communities or subdivisions
Issues to Avoid: Failure to comply with CC&Rs may result in legal action. Thorough review ensures awareness of any restrictions on property use, architectural guidelines or homeowners’ association obligations
Pending Litigation
Checking for any ongoing legal disputes involving the property such as divorce or inheritance-related concerns
Issues to Avoid: Undisclosed lawsuits or judgments can impact property value and transferability. Regular updates on pending litigation are crucial to providing accurate and up-to-date information
Zoning and Land Use Restrictions
Verify compliance with local zoning laws and land use regulations.
Issues to Avoid: Non-compliance with zoning regulations can lead to issues with property use or development. Understanding and addressing zoning requirements are essential to ensure a smooth transaction
Save Time & Money by Outsourcing Your Title Examination Process
Title assessment is a necessary yet time and labor-intensive activity. Delegating this task to a third-party partner can help you reduce your turnaround time. Here are a few advantages of outsourcing the title evaluation process
- Streamlined Mortgage Origination: Your team can focus on retaining clients and following new leads as the time from application to closing gets reduced
- Timely Delivery and Deadline Adherence: Outsourcing guarantees timely results, instilling confidence in clients and aligning with the fast-paced real estate industry
- Enhanced Risk Management: Leverage expert knowledge to mitigate risks and to keep up with industry regulations
- Cost Reduction & Resource Optimization: Save significantly on the latest tools, training and hiring costs, optimizing resource allocation for maximum efficiency
Partner With Us for Efficient Title Assessment
From seamless file intake and order fulfillment to precise title commitment typing and thorough tax searches, we provide a comprehensive suite of services. 15+ years’ industry experience, enables us to understand your needs and tailor our approach to help you streamline operations. Discover more reasons to outsource your operations to us on our website.
Share this on
LinkedIn
Facebook
Twitter
Email
Subscribe now for weekly updates
Related Posts
HOEPA Best Practices for Mortgage Professionals
We understand that as loan originators, ensuring compliance with HOEPA regulations is important for your business. And, if you regularly deal with high-cost loans, it
December 28, 2023
Best Practices for Impactful Mortgage Quality Control
As loan originators, you’re not just navigating the market; you’re steering your ship through potential storms. A misstep can be costly and we’re sure that
December 11, 2023
Ready to Save on Processing Costs & Scale Your Mortgage Business?
Mortgage Processing: The Efficient, Effective, & Economical Way
