How to read a title insurance report

When you buy a home in Washington state, you will receive a title insurance policy. Actually the convention here is that the seller buys a title insurance policy for the buyer, and then the buyer buys a title insurance policy for their lender. The purpose of the title insurance policy is to ensure that you own the home free of liens, encumbrances or other issues left behind by previous owners. The title insurance company examines the public records regarding the property and makes sure that at closing you have clear ownership of the property. Should a problem arise in the future, the title company would step in to defend your interests (and your lender’s interests).

As part of this process, you will receive a title report during your purchase process. Most purchase contracts will allow a review period of this title report. However, the reports are jammed with legalese and real estate jargon, and are difficult for the average home buyer to interpret. What does all of this information mean, and how should you interpret it? Your real estate agent and title officer can help you wade through these reports.

Normally there is a section on the report called “exceptions” with a list of items that the title company needs to have cleared to issue a title insurance policy. Here are some items to look for.

  1. Taxes & Assessments – The report will show the amount of regular property tax assessments and the status of payment. If back taxes are owed by the seller, escrow will take care of this payoff during closing. If the taxes seem abnormally low, watch for a special tax status like a “senior citizen exemption” that is artificially lowering the property tax rate. This exemption will go away with a non-senior buyer, so you need to be aware of the actual property taxes that you will be responsible for.
  2. Vesting – Check to see that the seller(s) in your purchase contract are actually listed on title as the vested owners. You cannot sell a home if you do not own it. If they are not listed on title, maybe there is a real estate contract listed on title that spells out their ownership interests.
  3. Identity Matters – Sellers with common names may show judgments and liens against someone with that same name. The title company will ask for more identity information to confirm that those judgments and liens are against a different person. If the judgments are against the seller, the matters will have to be released and recorded prior to the sale being completed.
  4. Deeds of Trust – Your title report will show a list of the seller’s mortgage obligations that need to be satisfied in order to close the deal. Escrow will ensure that all of these are paid off from the seller’s proceeds for the sale.
  5. Pending Actions – If there are civil legal actions against a property, they will generally have to be dismissed or settled before the property can be sold. The two most common items are when a divorce is in process or when the property is still in probate after the death of an owner. Divorces that are in process likely won’t stop the sale of the property, but there may be special requirements that the sellers need to meet. If the property is part of a estate or probate proceedings, the title company will be able to tell you what is required to release the property.
  6. Joint Use Matters – Often properties like townhomes will have common areas like driveways, shared walls or access easements recorded to make the home usable by all neighbors. These common areas likely have joint maintenance agreements recorded on title that spell out the obligations of each neighbor to maintain or repair the areas in question. It is important to read and understand these agreements.
  7. Legal Description – Real estate is purchased using a legal description NOT the property address. The legal description is a lengthy hard-to-read description of the exact parcel of land that you are buying and does not change over time. Verify that the legal description in the title report matches the one mentioned in your purchase agreement.
  8. Underlying Document Review – Often in a title report there will be a short entry like “subject to easement recorded under # 124345XXX”, with little other information. While sometimes these recordings are old enough to have no relevance, you can request a copy of the recorded document being referred to for further review.

If you still have questions, a title officer, real estate agent or real estate attorney can help you find more clarification and answers to questions brought up by the title report.

The Talon Group also did a short video to help explain how to read a title report.