Quick Glimpse of This Case:
The buyer made an offer on a house, contingent upon him selling his present home. The sellers responded “no contingency offers” so the buyer wrote up another offer without one. Sellers accepted and escrow was opened. Buyer was notified of acceptance and put his home on the market immediately. He didn’t want to make payments on two homes.
The sellers advised their agent in confidence that they owed money to the IRS and had a few other court-ordered settlements on record against them. The sellers asked their agent to hold off delivering the Preliminary Title Report (PTR) to the buyer so they might clear these off title. The agent, who was also representing the buyer, agreed to wait a few weeks before showing the PTR to the buyer. The buyer was unaware of any of this and was assured the transaction was proceeding as planned.
The buyer’s home sold. A few days away from closing escrow on the buyer’s home, the buyer asked about the missing PTR on his new home. With one glance at the PTR, it was clear that the sellers were not able to remove the money judgments on title, and there was insufficient equity to pay these liens. The buyer was compelled to complete the sale on his present residence, but had no home to move into. Left homeless, he consulted an attorney.
Advisory:
The licensee is the fiduciary of the client, and the licensee’s duties of utmost care, integrity, honesty and loyalty are spelled out in the agency disclosure. The licensee is expected to be knowledgeable in real estate matters. The Preliminary Title Report, or PTR, is a snapshot of the recorded liens, easements, and other matters of records which affect the property.
The delivery of the PTR to the buyer is typically called for in the sales contract. It is an agent’s duty to take a look at the PTR to discover any potential problems. An agent should call any such issues to the client’s attention. In this case it was the lack of equity and the seriousness of the seller’s liens which raised a red flag. This should have been disclosed to the buyer. Even though the seller’s debts are a confidential matter, if such debts will prevent escrow from closing, or delay the close, it is a material fact affecting the value or desirability of the property.
There are lesser issues of title which can be a red flag to the buyers. As an example, if the buyer indicates an intention to put a pool in the back yard, and the PTR shows an easement for an underground utility pipe in the area, the problem is obvious. Many title issues can be resolved with enough time. For example: Is there a name on title (like an ex-spouse) who is not part of the signed sales agreement? Will the present lender be willing to negotiate a short payoff on the outstanding liens? Is there an easement for a driveway or parking?
In many cases the PTR indicates the existence of another governing document by recorded reference to it. The presence of a lease may be indicated by a recorded memorandum. Covenants, Conditions, and Restrictions (CC&R’s) are typically indicated by reference. Agents should ask the title company for a copy of such further documents.
Summary Points:
Is an agent required to interpret the PTR? No. If the agent or client has questions, the appropriate title officer should be contacted for answers. Put your client in touch with the title officer. If you relay such information, be sure to quote your source and whether you have verified it or not.
Is the PTR accurate? No. That’s why it’s called “preliminary”. It is an offer from the Title Company to issue a policy of title insurance. These reports are updated every few weeks, so the PTR you get today might have been run last month. Yesterday’s new lien may not show up at all. It is also true that a recorded Deed of Trust reflects the original amount of the Note, not necessarily the current balance.
Should agents advise the buyers to read the PTR? Yes. Buyers may not be aware that the matters of title, which are on record, can and do impact their ability to use and enjoy the property. This same standard of care applies to agents who sell properties that have Covenants, Conditions, and Restrictions (CC&R’s) recorded. One agent carelessly told his buyers to “read these CC&R’s only when you want to fall asleep” and was sued for this poor advice. Condos, townhouses, and PUD’s are governed by such documents. Agents should let their clients know how important it is to understand what they can and cannot do with the property they are buying.
Good Luck!
Cari Lynn Pace
For further information, see Easements blog from April 10, 2008
