BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
Preliminary Title Reports
Q: I am a listing agent with a major problem. My seller is in escrow and is ready to close in ten days. Buyer was removing all contingencies when, apparently buyer looked at the Preliminary Title Report for the first time. There are several problems: (1) there is a second owner on title, who has signed neither the listing agreement nor the contract, and who is out of the country; (2) there are three loans on the property which almost total the purchase price and, with arrearages and penalties, the pay-off demands exceed the purchase price; and (3) there is a recorded easement (previously not disclosed to buyer) in favor of a neighbor who can drive across the rear of the lot. The buyer is upset and has gone to an attorney.
Seller says he forgot about his uncle, who gave part of the down payment, going on title. Seller also long ago added a debt consolidation third loan, and now has stopped paying any lenders since he lost his job. Finally, he just forgot to disclose the easement since it is rarely used by the neighbor. It looks like we can’t close escrow. Now what?
A: You may have done a whole lot of work for nothing. This situation points out the importance of an early and thorough review of the Preliminary Title Report (“PTR”). Not all parties have signed the purchase contract, and you can’t close until you have all signatures, or at least an acceptable Power of Attorney from the uncle.
Also, this appears to be a short sale, and you can’t close unless one or more of the lenders agrees to reduce their pay-off demand(s) to get down below the sales price with, hopefully, some room for your commission.
Finally, easements affect the value and desirability of the property. Seller admits he knew about the easement and just forgot; which can lead to a failure to disclose allegation.
WHAT IS A PRELIMINARY TITLE REPORT? The PTR is one of the most important documents in the sale transaction. It contains specific information regarding the property, the owners, and references other documents (such as liens, encumbrances, easements, and judgments) that could negatively impact the property and its use.
But, it is important to understand also what a PRT is NOT. It is not a policy of title insurance. While prospective buyers will customarily receive a PTR to examine the title prior to being obligated to purchase the property, a PTR is not a representation of the status of the title but rather is merely an offer to issue a title policy and a statement of the terms under which the insurer will issue a title policy.
PRACTICE TIPS:
LISTING AGENTS: There are a number of things listing agents should do when receiving a copy of the PTR:
1. Review the PTR as soon as you get it:
A. Check whether ALL sellers signed the Listing Agreement. And, check whether they have they signed in the correct capacity (e.g., trustee, representative of an estate, POA, etc.).
B. Check whether the recorded financial liens and attachments seem to exceed the purchase price? If these exceed, or are even close to, the net seller proceeds, this could be a short sale.
C. Ask the title company to pull all copies of non-lender liens, easements, judgments and attachments and to send hard copies to you and the buyer. Review these with seller to uncover problems that may affect escrow and closing.
D. ELECTRONIC PTR’s: In the case of electronic PTR’s, also ask the title company to send to you and the buyer hard copies of those documents which are accessible by hyper-link.
SELLING AGENTS:
2. As soon as you get the PTR, review it for all of the same items as for the Listing Agent, above.
3. Discuss issues with buyer. Ask buyer if he/she has any questions. If buyer has any questions, help him/her get answers by referring buyer to a title officer, or send buyer to an attorney if the title officer can’t answer buyer’s concerns.
4. Promptly raise any issues with seller if you need input from seller as to any PTR items. Be mindful of the contractual time for removal of the contingency for the review of the PTR and matters related to the title.
5. Don’t practice law. You should not be giving advice as to what recorded documents mean or their effect on the property or the buyer. Explaining the legal effect of these documents is within the province of attorneys – not real estate agents. Refer your buyer to a qualified California real estate attorney.
WEEKLY PRACTICE TIP: DO NOT FORWARD TO CLIENTS. This Weekly Practice Tip is for the exclusive use of clients of Broker Risk Management and their agents. It may not be reproduced or distributed without the express written consent of Broker Risk Management. The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry, but rather are intended to suggest good risk management practices.