Thousands of distressed and foreclosed properties are being sold at auction. There are very expensive pitfalls in buying property through auction. The auction company often posts on the internet a Preliminary Title Report along with the contract form and disclaimers and disclosures.

In one case, I looked at the Preliminary Title Report. The Preliminary Title Report is a Commitment to Insure Title, which is promise by a title insurance company to issue a Policy of Title Insurance after the closing to protect the buyer from liens that should have been paid off before closing or defects in the title. Never purchase real estate without the contract requiring a Policy of Title Insurance.

The Preliminary Title Report  in this instance showed exceptions for City of Jacksonville liens. I also looked at the contract form, which said that the title and title insurance would be subject to any exceptions shown in the Preliminary Title Report. One matter shown as an exception was a fine since January 5, 2010 of $50 per day, which would have been $18,250 within just a couple months after the auction! The unsuspecting high bidder will have to pay off that lien before selling the property, adding significantly more price than expected. 

When looking at properties to buy at auction, carefully read the Preliminary Title Report (also known as the Title Commitment). This is very informative, and you will become a savvy investor. Also, get a copy of all the documents listed on the Exceptions portion of the Title Commitment. There are 3 parts to Preliminary Title Report (Title Commitment): (1) Schedule A, which identifies the proposed buyer, the current owner, and the legal description of the property; (2) Schedule B-1, which shows the requirements to be satisfied before the title insurance company may issue a title insurance policy; and (3) Schedule B-2, which shows the exceptions to the title insurance policy, just like exclusions in a health insurance policy.