Preliminary Title Report

When buying real estate, it is important to obtain title insurance to protect yourself against future title or ownership claims against the property that you are buying. In the process of buying a real property, a title company will provide the buyer with a Preliminary Title Report for his review and acceptance. The Preliminary Title Report is a document prepared prior to issuing a policy of title insurance that shows the ownership of a specific parcel of land and the liens and encumbrances which will not be covered under a subsequent title insurance policy. It is a precursor to the Title Insurance policy that is provided after a property transaction is completed. Since the Preliminary Title Report typically contains exceptions to title insurance coverage, it is important for the buyer to review and understand the Preliminary Title Report.

Preliminary Title Report Sample

How to Read a Preliminary Title Report

Guide to Title and Escrow

Note If you have questions about specific items within a Preliminary Title Report, please contact the title officer who prepared the document. His contact information is on the first or second page of the Preliminary Title Report. For general questions about the Preliminary Title Report contact your real estate advisor.

Potential “Red Flags” to Look For on the Preliminary Title Report

A Preliminary Title Report will often times reveal the existence of certain matters that could delay or prevent a sale of the property. Such matters may include the following:

Vesting or How Title is Held: Title should be shown as being vested in the sellers. If it is shown as vested in someone else, the reason for this will need to be determined before the sale can close.
Taxes and Assessments: All taxes and assessments should be shown as paid current, and all special assessments must be disclosed.
Deeds of Trust: If a loan secured by a Deed of Trust has been paid off but the Deed of Trust has not been reconveyed, either a reconveyance from the trustee or a court order expunging the Deed of Trust must be recorded in order to remove it from the record. Deeds of Trust that are still of record affect the seller’s property, and will prevent the seller from conveying clear title.
Identity Matters: As part of its searching process, California Title will examine the General Index records to determine if there are any Abstracts of Judgment or other liens against the seller. Oftentimes, however, the seller will have the same name as a judgment debtor. To clear up any confusion, the seller will be asked to provide California Title with an Identity Affidavit, commonly known as a "Statement of Information" or "S.I." If the S.I. reveals that the seller is the same person as the one against whom the Abstract or lien was recorded, a release of lien or Satisfaction of Judgment will be required to eliminate the matter from the record.
Pending Legal Actions: A search of the title will sometimes show that a "Lis Pendens" or "Notice of Action Pending" has been recorded against the property. This means that a lawsuit has been filed concerning title to, or possession of the property, and anyone who takes an interest in the property will take it subject to the outcome of the lawsuit. Either the lawsuit will need to be dismissed, with prejudice, or the Lis Pendens will need to be withdrawn in order to convey clear title. There may be special requirements in the case of probate matters or marital dissolution actions.
Maintenance Agreements: In some cases, a property may be subject to a recorded Maintenance Agreement which obligates the property owner to pay the future cost of maintaining or repairing common walls, driveways, private roads or easements. If a preliminary report shows the existence of a Maintenance Agreement, the buyer should obtain a copy of the Agreement and thoroughly review and understand it prior to closing escrow.
Extended Coverage Matters: In any transaction in which an extended coverage owner’s policy is requested, an ALTA/ACSM (American Congress on Surveying and Mapping) survey will be needed in order for California Title to issue the policy.
Legal Description of Property: The legal description set forth in the preliminary report must match the map of the property attached to the report. Any questions as to the description of the property being conveyed should be directed to the title officer.
Notice of Default: This is a recorded notice that the borrower under a loan secured by a Deed of Trust against the property is currently in default. In most cases, a Notice of Trustee’s Sale can be recorded within ninety (90) days after the Notice of Default has been recorded, and the property can be sold to satisfy the debt.
Notice of Trustee’s Sale: This is a recorded document showing that the property is being sold to satisfy an obligation secured by a Deed of Trust, which gives the date, time and place of the sale. If a property is being purchased in a transaction in which a delinquent Deed of Trust is to be satisfied, care must be taken to ensure that the close of escrow (COE) date is set prior to the date of the trustee’s sale.

Things to Review on the Preliminary Title Report

Check the Vesting: Make sure that the person who is on title is actually the person selling the home. Not having all signatures at the close of escrow could become a costly delay.
Review the Map: Always make sure that the property that is being bought or sold matches the property that is being searched by the title company. A map is provided in the back of your report. If it’s not, contact your title officer immediately and request one be sent over for that file.
Review Any Liens: Liens are common in today’s transactions, but some liens reported on the Preliminary Report may have been settled by the owner and can be removed. In contrast, without a seller’s Statement of Information, additional liens may not be reported and can cause delays in the close of escrow after they’re uncovered.
Beware of Bankruptcies: If you see an item that identifies the property as being involved in a bankruptcy, call your title officer immediately. The title insurer may need additional information regarding the property and the bankruptcy, and this information may become time consuming to obtain.
Review Any Restrictions: When buying a property, make sure you've reviewed all restrictions and know what you can do with the property. Finding out after you close on your home that you can't build a second story or can't keep horses on the property can be very frustrating and is typically a matter that can be avoided.

The foregoing "red flags" tips are provided courtesy of California Title Company.