The process of purchasing real estate is one that should not be taken lightly; the contracts and loan documents alone can be overwhelming. Then take into consideration the legal transfer of title and you could be over the top. If you are not a professional, it is important to have one guide you through the process. One of the necessary parts of the process is reviewing and understanding a property profile report and then the “full coverage” title report.
A property profile report provides a preliminary look at the status of liens against a property. I highlighted the word preliminary because there is a key difference between a preliminary (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 if 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.
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 make 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 Personal Representative who most likely won’t be on title.
Outstanding loans and liens on the property: These can consist of many things; mortgage(s), unpaid taxes and mechanic’s liens (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 or not to do something with the land, for example: build a gate or not allow the use of public lands for 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” report. 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 property profile reports (often free reports) that investors have used when purchasing foreclosures. Some investors have relied on these reports to document all of the liens against the property. Then they find out after the property has been purchased often on the courthouse steps that there are additional liens they are now responsible for; this can often eliminate their profit. Investors tried suing title companies for misinformation, but the cases don’t have merit because the title company didn’t guarantee the information in the property profile.
The only guarantee to having clear title is a “full coverage” report.