Updated: Aug 31, 2020
The Preliminary Title Report is an offer to issue a policy of title insurance covering a particular estate or interest in land, subject to stated exceptions.
When you're in a real estate transaction and have opened Escrow, the Preliminary Report provides a list of matters which will be shown as exceptions to coverage in a designated policy. Below are some common questions and items that a beginner investor may not be aware of.
Here are some common items shown in the Preliminary Title Report:
The Estate of the interest covered
The Owner of the estate or interest
The parcel of land involved
The exceptions, liens, encumbrances, and other risks which will not be insured against if a title policy is issued
Other requirements and provisions which are reflected as “notes” in the preliminary report which are removed if and when a title policy is issued
How does the Preliminary Title Report affect the real estate transaction?
The Preliminary Title Report provides the opportunity, prior to purchase, to review matters affecting the property which may require clearing prior to the transaction closing, or which will be excluded from coverage under the title insurance policy. This is an area that which you can go back to the table and re-negotiate terms.
When and how is the Preliminary Title Report produced?
Shortly after escrow is opened, an order will be placed to begin the process of “searching” various public records and recorded matters relative to both the property and the parties involved in the transaction. This information is then compiled into the Preliminary Title Report for the parties’ review. It is important to have a trustworthy Escrow/Title company on your team because they're well versed in all the real estate transactions that come their way. They will help highlight items that need further review, that could change the whole real estate transaction process.
Why should I carefully read the Preliminary Title Report?
If you're going to take title on a property, you had better know what you're signing up for! This is where it's very important to not glaze over the documents that come your way from your Escrow/Title company. This is part of your due diligence process to ensure you acquire a good property that meets your investment criteria. Examine thoroughly all ownership rights and claims, as restrictions and encumbrances may pass along with the property to the new owner. Examples of “red flags” include: Mechanics’ Lien, Lis Pendens, Bankruptcy, Uninsured Deed, Access.