You finally found the perfect home. Is the home perfect? You’ll be buying more than just an attractive home. You may also have to pay for liens left by the previous owner. Has the property been restricted by documents?
You will have the chance to review your property’s title prior to purchasing a policy. If you do not remove or eliminate any items before purchase, they will be excluded.
California Land Title Association provides answers to some of your most common questions regarding preliminary reports.
What is an initial report?
A preliminary report shows who owns a parcel of land and what liens, encumbrances, etc. are on it. This report is done before issuing title insurance policies.
What is the purpose of a Preliminary Report?
The title company’s preliminary report will specify the conditions in which it will issue the policy.
The report will list, before purchase, all title defects and liens that are excluded from coverage by a requested title insurance. The report will be reviewed by both parties in the transaction as well as their agents.
Consequently, a pre-purchase report can be used to ask for items to be removed that the buyer finds objectionable.
How and when is the Preliminary Report generated?
The title company will receive an order shortly after the escrow opens and begin the production of the report.
This involves gathering and reviewing certain recorded matters relating both to the property and to the parties involved. Recorded matters can include deeds of trust against a piece of property, liens against the buyer and seller for unpaid taxes, court awards or other unpaid amounts.
The preliminary report lists these matters numerically under the heading “exceptions”. The exceptions will remain until the title insurance is removed or released.
What should I be looking for in my preliminary report?
You are primarily interested in your ownership rights. It is important to understand the extent of your ownership rights.
In the statement of vesting, it will be noted the extent, quantity, type and nature of the ownership interest. The highest form of ownership is “fee simplicitas” or “fee”.
The report will include “exceptions”, a numerical list of liens, restrictions or other interests which are excluded. These can be claims from creditors that have liens. You may find restrictions in a previous deed, or in CC&Rs – covenants, conditions and restriction. Third parties’ interests are common and can include easements granted by an earlier owner that limit your property use. It is possible that you do not want any claims or restrictions to be placed on the property. You may wish to remove unwanted items before purchasing.
As an exhibit to your report, you may also include a list of exceptions and limitations that are standard in title insurance policies. Title insurance policies have standard exceptions to cover items that may not be covered by your policy. This section will help you to understand what is not covered by the title insurance, and which matters may be worth investigating.
Does the Preliminary Report reveal the full condition of a title?
No.
You should be aware that the preliminary title report is not an official written statement of the status of a land title. It does not necessarily list all defects or liens that could affect title, but rather identifies the current owners and the issues that will not fall under the coverage provided by a title insurer if the insurance is later issued.
Does a preliminary report mean title insurance?
No, absolutely not. A preliminary report does not contain a history of all documents recorded in relation to the property. The preliminary report is simply a summary of the conditions and terms of an insurance offer, it does not represent the condition of a property’s title.
These distinctions can be important for several reasons.
Can title risks be mitigated before the transaction is closed?
Yes, you can. Title companies protect your interests by issuing “binders” or “commitments.”
Binders are agreements to provide insurance coverage temporarily until a formal policy can be issued. Title insurers are contractually obligated to provide title insurance to real estate once their stated requirements have been satisfied.
Talk to your title insurance provider about the best ways to protect your rights.
How can I remove liens or encumbrances that are not mine?
The report should be carefully reviewed. If the title is clouded by liens or encumbrances, you and your agent will work with the sellers and their agents to remove them before taking title.
For more information on Preliminary Reports, where can I go?
You can also get help from your real estate agent or attorney, if you decide to hire one. Also, your title and escrow company may be a good source.
IN SUMMATION
The most important task in a business that is aimed at reducing risk is the preparation of a preliminary report. This is to allow for the issue of a title insurance policy.
