Sometimes the seemingly mundane things like carefully reviewing a preliminary title report can save you a lot of headaches when buying or selling a home. What is a preliminary title report? A preliminary title report is a report prepared prior to issuing a policy of title insurance that shows the ownership of a specific parcel of land, together with the liens and encumbrances thereon, which will not be covered under the title insurance policy being issued.
Title reports can reveal things about a property that you did not expect. Recently, I reviewed a title report that showed that the property I was selling could be rented only for a price that was substantially below market. It wasn’t obvious reading the preliminary title report itself; you had to dig in and review the documents referenced within. By doing this, I learned that the unit I was selling at one time had been created as a studio illegally in the lower part of a two-unit building. What I subsequently discovered at an open house when the former owner of the building walked in was that it had been created as a living space for her nanny so that the nanny could live there and take care of the children who lived in the unit above. The unit was subsequently legalized but not without the City requiring that the unit’s rent be limited to an amount substantially below market and that the unit (even though made a condo) was subject to the rent control ordinance.
Had I not dug into the documents, I would not have known this since the fact was not specifically disclosed to my client sellers when they bought the unit. The significance of disclosing an issue like this is that if an investor bought it and started charging market rent, that investor could be fined if discovered or reported and restricted to the below market rent from then on. If that wasn’t disclosed, my client sellers would probably be hit with a costly lawsuit. As a former practicing attorney, I make sure I carefully read title reports as well as CC&Rs and other disclosure documents to make sure my clients (buyers and sellers) are protected.
Another time I was representing a buyer on a property that had changed hands a number of times. But no one seemed to have noticed by reviewing the preliminary title report and the CC&Rs referenced therein that the parking space that was being sold to my client was not the parking space that was deeded to the unit. The parking space that was deeded to the unit was a better space, easier to get into. At some point, spaces had been informally switched but there was no formal documentation and no indication that money had changed hands. My client was entitled to her deeded and preferable space, which I made sure she asked for.
In this overheated market where properties sell quickly (one recently sold within a day!!), it can be challenging to review everything carefully before writing what often is a non-contingent offer. If you are looking for someone to represent your best interests and spot any potential issues before you buy or sell a property, please don’t hesitate to give me a call.