Every lending journey starts from seeking a borrower and real property collateral. However, real property collateral may sometimes have a false appearance, so it is important to make adequate research and findings to avoid unresolved liens from the previous owner. Put differently, anything that can hinder a stress-free foreclosure if necessary.
To avoid any of the listed problems, you need a preliminary report. A preliminary report provides the lenders with the necessary information to help review any issues with the property, such as issues their title insurance won’t cover. Most times, a preliminary report is the first document drafted before any other lending documents such as title insurance policy. In this report, in-depth details relating to the legal ownership of the property are written out.
When preparing the preliminary report, as a lender, you need to pay keen attention to the scope of your borrower’s ownership rights and other information such as the degree, quantity, nature, and extent of the borrower’s current and future ownership interest. Preliminary reports also have exceptions known as creditor’s liens against owners or restrictions that affect how a lender uses the property in the eventuality of a future takeover. This could even make you, as a lender, lose compensation. This is why you should carefully examine the clauses and terms of the exclusions.
This report is not limited to title insurance coverage alone but also covers the title insurance policy provider to insure the property. It is important to separate these two to ensure no contract or liability between the lender and title insurance company until after the policy is issued. Preliminary reports play is important in protecting the lender by facilitating the issuance of title insurance policies
Click here to find out more about preliminary reports and how you can protect yourself as a lender.
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