The home inspection report is a crucial document for anyone buying a house, but many people often overlook another important document—the Preliminary Title Report. This article will explain why the Preliminary Title Report deserves special attention.

If you are financing your home purchase, the lender will definitely require a title search to check for any issues with the title. If you are buying with cash, you can skip this step, but doing so exposes you to significant risk. Thoroughly reviewing the Preliminary Title Report can help you avoid risks in three areas: ownership, liens, and usage rights.

First, you need to verify ownership to ensure that the seller is indeed the rightful owner and has the legal right to sell the property. Make sure the owner's name on the Preliminary Title Report matches the person signing the sale contract. Check if the title owner is an individual, a couple, or a company. If it's a couple, ensure both names are on the contract; if it's a company, verify the legal representative. For example, there was a case where a buyer found out just before closing that the seller wasn't the actual owner. The previous owner had put the property in a trust and entered it into probate, meaning the current seller had to sort out the ownership with the original owner's heirs before proceeding.

Liens, a term that might sound abstract, essentially mean the property is being used as collateral. For instance, if property taxes are unpaid, the government will place a tax lien on the property. Similarly, if you remodel your bathroom and pay a general contractor who then doesn't pay the supplier, the supplier might place a mechanic’s lien on your home. If you find any liens in the Preliminary Title Report, have the title company investigate whether the seller has settled these debts. Generally, any debts secured against the property must be cleared by the seller before the transaction, as lenders might refuse to fund the loan due to the risk of unpaid debts.

Usage rights refer to any restrictions on how the property can be used. These are often more prevalent in communities with a Homeowners Association (HOA), which might have rules about building height, exterior colors, or types of construction materials. Even standalone homes without an HOA can have restrictions. For example, one buyer discovered that a neighbor had added a restriction prohibiting the construction of a second story, just to ensure their sunlight wouldn't be blocked.

With the help of a professional real estate agent, you can use the Preliminary Title Report to clearly understand these three aspects: ownership, liens, and usage rights. While the first two can usually be resolved early in the transaction process, limited usage rights must be carefully considered before making an offer. Otherwise, you might find yourself delighted one moment before closing, only to be severely constrained by unexpected restrictions the next.