Reviewing exceptions/exclusions in a preliminary title report in California

Reviewing a preliminary title report is generally one of those topics for which you may benefit from the experience of a real estate attorney.  A preliminary title report is simply an offer for title insurance – it is often both negotiable and correctable.      

1. Report says: “Taxes and assessments, general and special, for the fiscal year [current year] – [next year], a lien, but not yet due or payable.”

Attorney Glaser: These are probably standard taxes.  If you have an escrow open pursuant to an ordinary home purchase agreement, then taxes will be apportioned (by the escrow) between the parties during the year of the sale.  More information about your property taxes can be found within your Natural Hazard Zone Report, which has a special section devoted to special assessments in your district.

2. Report says: “Taxes and assessments, general and special, for the fiscal year [prior year] – [prior or cur, as follows: [table with property tax info]

Attorney Glaser: You or your escrow officer should check with your County tax assessor to see if back taxes are due on the property.  You may be dealing with a property that was previously subject to foreclosure or tax problems.   If you have an escrow open pursuant to an ordinary home purchase agreement, then back taxes will most likely be paid by the seller (prior to or at close of escrow). This is no biggie.  Check your purchase agreement. Here’s a tip for home buyers and their realtors: on the CAR Form Purchase Agreement section 4D7, check the box for “Seller will pay” and then write, “any sums owing sellers lenders, and any delinquent taxes/liens/judgments.”  This will help make the agreement even more explicit that seller must pay these back taxes.  It will also cover this common sentence in title reports, “Any claim of lien for services, labor or material arising from an improvement or work under construction or completed at the date hereof.”

3. Report says, “Said property having been declared tax defaulted for non-payment of delinquent taxes for [prior year] – [prior or current year]”

Attorney Glaser: You are likely dealing with a property previously subject to foreclosure or tax problems.  Check with your County tax assessor to see if back taxes are still due on the property.   Ask your title officer is there is a trustee’s deed or sherriff’s deed recorded on the property.  You might also be able to find this information directly on the title report, as in “Any insufficiency of the proceedings leading up to and including the recording of the trustee’s deed.” There are some notable legal and practical issues regarding purchasing property that was recently foreclosed upon.  Most buyers just want to know if the foreclosed-out homeowner can come back to reclaim the property?  The answer is most likely no.  In California, post-sale redemption is only available for judicial foreclosures (except where there is a nonjudicial foreclosure by a homeowners association) and not for private sales. Errors in the private sale process can create some wrinkles so consider title insurance.

4. Report says, “Rights and claims of parties in possession.”

Attorney Glaser: This item is just another one meant to protect the title insurance company. It means that if there is anyone living in the property right now, it’s the buyer’s responsibility to deal with them.

5. Report refers to Easements and/or CC&Rs

Attorney Glaser: Utility easements (roads, lines, poles) are very common. Neighbor easements are less common – review the records on file. Subdivision easement examples: “Easements for ingress, egress, private rights and/or utilities and incidental purposes, as disclosed by docs of record affecting the ‘Common Area'”, “Covenants, Codes, and Restrictions”, “Agreement for Subdivision Improvement”.  These may refer to CC&Rs – a document that limits what you and your neighbors can do on a property in your subdivision/neighborhood.  You may want to review a copy of the document. Sometimes though a reference to a subdivision just refers to some subdivision map on file.   Where the report refers to “Liens and charges for upkeep and maintenance as provided in the CC&Rs”.  This just refers to annual/monthly HOA dues, or community subdivision dues.  It’s generally a smart idea to give the local HOA a call to confirm the property is current on the HOA dues.

6. Report says, “Any claim to set aside the trustee’s deed [identifying info], in bankruptcy proceedings filed by [name] within [x] years from the foreclosure sale.”

Attorney Glaser: This is a standard “Durrett clause”. Do you have any specific information that a bankruptcy was involved on the property?  If there was a bankruptcy sale, the title report would normally state “bankruptcy trustee’s deed”.  However, that is not always the case, so it may be worth a quick call to the former trustee to confirm.  Generally, things can be a bit more cumbersome when a debtor is involved in active bankruptcy proceedings.  For example, the inadequacy of the consideration can be grounds to have a sale set aside under federal bankruptcy laws. If the sales priced does not equal or exceed 70 percent of the property’s fair market value, the sale can be voided as a fraudulent transfer if the debtor files for bankruptcy within one year of the sale.  Notably, in order to set aside the sale in a legal action, the debtor must first repay or offer to redeem the property from the purchaser at the price brought at the foreclosure sale.

7. Report says, “We find various Liens and Judgments, that are of record against persons with similar or the same name as that of our vestee(s) shown herein.  In order to complete this report, this Company requires a Statement of Information to be provided for the following vestee(s), which may allow and assist the elimination of some or all of said Liens and Judgments.  After review of the requested Statement(s) of Information, the Company reserves the right to add additional items or make further requirements prior to the issuance of any Policy of Title Insurance.  Vestee(s): [names of the sellers]”

Attorney Glaser: This is a boilerplate clause that some title companies like to put in preliminary title reports — it does not necessarily mean that there are actual liens on the property.  Rather, it just means the title company asks its home sellers to fill out a simple form that provides some background information before they issue a title policy.  So don’t worry about it – if there were liens recorded on the property, those liens should show up on the preliminary title report rather than just the above boilerplate language.

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