Part 3 - Preliminary Title Report
Disclosure packages always include a preliminary title report, prepared by a title insurance company. A preliminary title report may be one of the most important documents in a real estate transaction.
What is a Preliminary Title Report?
A preliminary title report establishes the legal ownership of a property. In addition, it provides information about the lot, boundaries, and any known easements. The title report also shows any liens, restrictions, or encumbrances (a claim against the property by someone who is not the owner) that could limit how the property can be used.
These “exceptions” (as they are called) in the title report encompass a variety of issues. For instance, a few examples are:
- Rules in the CC&Rs (Covenants, Conditions and Restrictions) of a homeowner’s association that restrict the use of the property
- Easements granted by the previous owner for a utility company or other entity to access the property
- A lien recorded against the seller for unpaid taxes or other unpaid debt
Expect Exceptions
While every property has some exceptions, certain exceptions must be removed before a title insurance policy is issued.
Title insurance is typically required when you purchase a property with a mortgage. This is because title insurance protects a lender’s interests in the event you default on the loan. Even when you purchase a property with cash, title insurance is still highly recommended, although not required.
A title company uses the preliminary title report to determine if the seller has the right to sell the property. In addition, they use the report to establish if the title to the property is free of any defects.
If any exceptions are discovered, the title company helps resolve the issues before close of escrow. After closing, title insurance covers the cost of resolving any previously undiscovered issues.
Protecting Your Investment
Title insurance safeguards your interests as the homeowner against any outstanding or unidentified claims on the property. As such, it’s one of the most important ways to protect your investment.
Thoroughly investigating and resolving any exceptions in the preliminary title report ensures your title to the property is clear. And this is critical not only when you make the purchase, but for the lifetime of your ownership of a home.
Read Part 1 of the Series:
Seller Disclosures
Read Part 2 of the Series:
Reports
Read Part 4 of the Series:
HOA Disclosures
Read Part 5 of the Series:
Compliance Disclosures & Certificates
Read Part 6 of the Series:
General & Other Disclosures
