What to Look For In Your Preliminary Report
Vested Owner's Name
Are the names the same as shown on the Purchase Agreement/Deposit Receipt? Have all parties executed and approved the Purchase Agreement?
Type of Estate or Interest
Fee Title or other (leasehold/equitable)
Current Taxes, Supplemental Taxes due to recent reassessment, lien for future supplemental taxes, Sale to State for unpaid delinquent taxes/bonds.
Understand the type and location of all easements - don't hesitate to ask your escrow officer or title officer for a copy of the recorded easements. Covenants, Conditions and Restrictions (CC&R's Declaration by owners of any subdivision prior sale describing property restrictions and agreements affecting said property and future owners. Copies of all recorded CC&R's are available upon request. Deed of Trust All existing loans against the property or existence of any paid-off loans which have not yet been reconveyed of record. Notice of Default Alerts all parties of an existing foreclosure proceeding. State or Federal Tax Liens, Judgments, Bankruptcy Any court proceedings affecting the seller and/or the property therein.
A method of geographically identifying a parcel of land, by lot and block or metes and bounds. Also, discloses assessor's parcel number.
Five-Year Short Term Rate
If applicable, a 20 percent savings is passed along to the buyers on properties insured by any title company within the last five years.
Describes lot size and identifies street name and nearest intersection.
UNDERSTANDING PRELIMINARY REPORTS
YOU'VE FINALLY FOUND YOUR PERFECT DREAM HOME. BUT IS IT PERFECT?
HAVE DOCUMENTS BEEN RECORDED THAT MAY CLOUD THE TITLE OR RESTRICT THE USE OF THE PROPERTY? ARE THE PARTIES THAT SIGNED THE LISTING AGREEMENT AND DEPOSIT RECEIPT THE SAME PARTIES THAT OWN THE PROPERTY? WILL THESE PROBLEMS HOLD UP CLOSING?
THE PRELIMINARY REPORT WILL PROVIDE YOU WITH THE OPPORTUNITY, PRIOR TO CLOSING, TO REVIEW MATTERS AFFECTING THE SUBJECT PROPERTY WHICH WILL BE EXCLUDED FROM COVERAGE UNDER THE TITLE INSURANCE POLICY UNLESS REMOVED OR ELIMINATED BEFORE CLOSING.
TO HELP BETTER UNDERSTAND THIS OFTEN BEWILDERING SUBJECT, BIDWELL TITLE & ESCROW HAS ANSWERED SOME OF THE QUESTIONS MOST COMMONLY ASKED ABOUT PRELIMINARY REPORTS.
Q. What is a Preliminary Report?
A. A preliminary report is a report prepared prior to issuing a policy of title insurance that shows the ownership of a specific parcel of land, together with the liens and encumbrances thereon which will not be covered under a subsequent title insurance policy.
Q. What role does a Preliminary Report play in the real estate process?
A. A preliminary report contains the conditions under which the title company will issue a particular type of title insurance policy. The preliminary report lists, in advance of purchase, title defects, liens and encumbrances which would be excluded from coverage if the requested title insurance policy were to be issued as of the date of the preliminary report. The report may then be reviewed and discussed by the parties to a real estate transaction and their agents. Thus, a preliminary report provides the opportunity to seek the removal of items referenced in the report which are objectionable to the buyer prior to purchase.
Q. When and how is the Preliminary Report produced?
A. Shortly after escrow is opened, an order will be placed with the title company which will then begin the process involved in producing the report.
This process calls for the assembly and review of certain recorded matters relative to both the property and the parties to the transaction. Examples of recorded matters include a deed of trust recorded against the property or a lien recorded against the buyer or seller for an unpaid court award or unpaid taxes. These recorded matters are listed numerically as "exceptions" in the preliminary report. They will remain exceptions from title insurance coverage unless eliminated or released prior to the transfer of title.
Q. What should I look for when reading the Preliminary Report?
A. You will be interested, primarily, in the extent of the ownership rights. This means you will want to review the ownership interest in the property as well as any claims, restrictions or interests of other people involving the property. The report will note in a statement of vesting the degree, quantity, nature and extent of the owner's interest in the real property. The most common form of interest is "fee simple" or "fee" which is the highest type of interest an owner can have in land. Liens, restrictions and interests of others which are being excluded from coverage will be listed numerically as "exceptions" in the preliminary report. These may be claims by creditors who have liens or liens for payment of taxes or assessments. There may also be recorded restrictions which have been placed in a prior deed or contained in what are termed CC&Rs--covenants, conditions and restrictions. Finally, interests of third parties are not uncommon and may include easements given by a prior owner which limit the use of the property. Some buyers may not wish to have these claims or restrictions on their property. Instead, they may want to clear the unwanted items prior to purchase. In addition to the limitations noted above, a printed list of standard exceptions and exclusions listing items not covered by the title insurance policy may be attached as an exhibit item to the report. Unlike the numbered exclusions, which are specific to the property in question, these are standard exceptions and exclusions appearing in title insurance policies. The review of this section is important, as it sets forth matters which will not be covered under the title insurance policy, but which you may wish to investigate, such as governmental laws or regulations governing building and zoning.
Q. Will the Preliminary Report disclose the complete condition of the title to a property?
A. No. It is important to note that the preliminary report is not a written representation as to the condition of title and may not list all liens, defects, and incumbrances affecting title to the land, but merely report the current ownership and matters that the title company will exclude from coverage if a title insurance policy should later be issued.
Q. Is a Preliminary Report the same thing as title insurance?
A. Definitely not. A preliminary report is an offer to insure, it is not a report of a complete history of recorded documents relating to the property. A preliminary report is a statement of terms and conditions of the offer to issue a title insurance policy, not a representation as to the condition of title. These distinctions are important for the following reasons: first, no contract or liability exists until the title insurance policy is issued; second, the title insurance policy is issued to a particular insured person and others cannot claim the benefit of the policy.
Q. Can I be protected against title risks prior to the close of the real estate transaction?
A. Yes, you can. Title companies can protect your interest through the issuance of "binders" and "commitments." A binder is an agreement to issue insurance giving temporary coverage until such time as a formal policy is issued. A commitment is a title insurer's contractual obligation to insure title to real property once its stated requirements have been met. Discuss with your title insurer the best means to protect your interests.
Q. How do I go about clearing unwanted liens and encumbrances?
A. You will wish to carefully review the preliminary report. Should the title to the property be clouded, you and your buyer or seller will work with the Title Company and your Escrow Officer so that they can verify what is needed in order to clear the unwanted liens and encumbrances prior to taking title.
Q. Who can I turn to for further information regarding Preliminary Reports?
A. Your real estate agent and your attorney, will help explain the preliminary report to you. Your escrow and title company can also be helpful sources.
CONCLUSION: In a business which is directed at risk elimination, the efforts leading to the production of the preliminary report, which is designed to facilitate the issuance of a policy of title insurance, is perhaps the most important function undertaken.
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