Buyer's Guide on How to Read a Preliminary Title Report

Escrow is Open

Escrow has been opened on your home purchase and then it arrives . A big package from escrow with lots of papers in to to sign. Along with those initial papers is usually a Preliminary Title Report or it may be sent separately but it will arrive usually with 5 days of opening escrow. This report is called in the trade, a Prelim. Along with the CC&R's, Statement of Identity , copy of the escrow instructions, it instructs you read the Preliminary Title report and sign for receipt of it. Now what?

The Purchase Agreement

In your California purchase agreement, there was a checkbox for either the seller or the buyer to pay for title . It also provides a space for the Buyer to specify in the offer who would issue that insurance policy. If you look at the top of the Prelim, it will state who the Insurer will be when the insurance policy is issued and this escrow closes. It will also have a person's name designated as the Title officer.

What is a Prelim?

The Prelim is a statement of the present ownership and matters that the title company issuing the insurance will exclude ( or except) from coverage if the insurance policy is issued by them . It provides identification of all the current owners of the property, and the extent of the owners interest that you are purchasing as well as any restrictions or interests of others involved in the parcel.

Forms of Interest

The most common forms of interest being Fee or Fee Simple. The Prelim report will also contain the details of any of the recorded liens or encumbrances on the property. There is also an exhibit page from the issuing title company that defines any conditions or terms under which the issuing title company will ultimately issue the title insurance including the exceptions page. Those are general exceptions that are standard exceptions for generally of this insurers policies.

The Exceptions

The numbered exceptions though are specific to the property that will be insured. These you must pay close attention to. They could be claims for taxes that owed, creditors claims, construction liens, etc. There may also be recorded restrictions, such as might be contained in the CC&R's that might govern a particular subdivision or a condominium community. There may be easements for utilities or specific easements granted by a prior owner which might limit your use of the property and even to provide access for use of your land by others.

Where to Direct Your Questions

If you have questions about any of the recorded liens,encumbrances or easements, the title officer will be able to answer those questions. If they are recorded they are a part of the title search process and the corresponding documents can be researched if specific information is needed. If there are any general or specific easements that exist on the parcel, they will be also be identified here.

Your title officer can arrange to have these easements plotted on a parcel map so that you may understand exactly where they are and how they might impact your use of the property. The most common form of easements are for public utilities such power lines, gas lines,sewer,water etc. But there are other types of easements such as access easements and even proposed road easements.

A Noted Exception

As I write this, I am reminded of a situation that came up in one of clients purchases a few years back. We found that a road easement was plotted to run through near the middle of a property that my client was under contract to purchase. It was explained that although there had been a proposed road there, the road was actually already built about 300 feet to the south of the parcel being purchased. The past title insurer had made it an exception when the parcel was last purchased but I guess no one noticed. Makes me wonder how the builder got permits to build in the first place. That's for another post,lol. This easement impacted only 2 other parcels but it would take all 3 owners to remove this unused and unneeded easement. I remember that It took a while to get everyone's signatures on the required documents to get that easement removed. It was a great leaning experience to understand that from time to time, even the unneeded and unintended can end up as a recorded easement on a parcel.

Is There A Gaurantee ?

The prelim is no guarantee of the exact condition of a parcel. It may not list all liens, defects or encumbrances that affect the title. But it is essential that you read this and ask questions if there is anything that comes up that looks unusual. Bear in mind that this is a report of the current ownership and what will be excluded from coverage when the policy is written. If you have ever read a title policy, it is much like reading the ancient Hebrew text of the bible. Some words will be clearly understandable while with others you could possibly be missing most of the contextual meaning. So take this seriously and make it a priority to understand the condition of the property you are about to own. As your REALTOR, I also will read it. But it is still your obligation and part of your Due Diligence to investigate this property and that includes the Prelim and to be satisfied that what you are getting in the purchase is as you understand it to be and agree to.

Courtesy of William Johnson GRI CRS e-PRO author of The Real Estate Text Book and The Voice of San Diego Real Estate