The preliminary title report reports the condition of title for a specific piece of real estate. It is a preliminary commitment by the title company for title insurance. The “final” title report is issued soon after closing. The real estate purchase agreement (RPA) usually includes the instruction for escrow to order the preliminary title report. The ordering happens as soon as the buyer or seller or their real estate brokers open escrow. The preliminary report includes information about the property that the buyer should know, such as current title vesting, easements, loans, and other encumbrances against the property.
Who compiles the preliminary title report?
The person who compiles the report is known as a title examiner. The examiner issues the preliminary report based on their findings from researching the title through every record available for the property. Chain of title means the sequence of historical transfers of title to a property; each sale or transfer is a “link” in the chain. The title examiner makes sure all the links are present. When one of the links is missing, it is a “break in the chain of title.” For example, there is a period with no recorded owner preceding the current owner because a prior deed wasn’t recorded. This search determines if the person selling the property has legal ownership.
The portion of the report detailing the history of property ownership is an abstract of title. In the report, the general heading of Title Search includes the search for existing encumbrances. Abstract of title is a detailed history of property ownership; title search is a detailed listing of encumbrances. The abstract and search are compiled into and become the preliminary title report.
How do they do a title search?
- A title company examiner searches the records of the county recorder, county assessor, and governmental taxing agencies that may affect title.
- Some title companies have their own records department, known as a title plant. They keep duplicates of recorded documents from offices and courts at the federal, state, county, and municipal levels.
- A title examiner has four primary determinations:
- The exact description of the property
- The estate interest in the property
- The vesting of the estate interest
- The exceptions affecting the vested interest, such as liens, encumbrances, and miscellaneous defects
The title search and subsequent preliminary title report reveal the following:
- The vested owner’s name, as disclosed in the public records
- Current real estate property taxes, including whether they are paid or unpaid, and the date of the last property assessment
- Outstanding liens, encumbrances, covenants, conditions, restrictions, and easements
- A plat map of the subject property that shows the location and dimensions of the property
The preliminary title report also lists the items the escrow agent needs to remove from the report to transfer title to the buyer, clear of the ones the buyer did not agree to assume in the RPA. A “clear title” is free from liens and other encumbrances that might put the new owner’s ownership in jeopardy. With a clear title, ownership is not in question.
Who gets the preliminary title report?
Copies of the preliminary title report are sent to the buyer, seller, lender, and real estate brokers for review and evaluation. Buyers and sellers, and their brokers, should review the report for items that might adversely affect the sale or the buyer’s intended use of the property. It is also essential to verify that the title report has the correct property address and escrow company file number. Only the items listed as of the date on the report are included in the preliminary report. Items discovered after the issuance of the preliminary report are delivered in a supplementary report. When there are references items like Covenants, Conditions, and Restrictions (“CC&Rs”) and easements recorded against the property, the buyer should request copies of these documents from their escrow officer or title examiner, as listed on the report’s cover page.
Most RPAs include a contingency allowing the buyer an opportunity to review the report and object when there are items that interfere with the buyer’s intended use of the property. For example, if the buyer is buying a large lot and intends to store an RV, but the CC&Rs prohibit RV parking, the buyer could object to the report and terminate the transaction. Likewise, when undisclosed easements or rights-of-way are listed. The title report will also include a plat map of the property. Property dimensions on this map should not be considered conclusive but should be questioned by the buyer when differing from those represented by the seller. If there are questions about actual boundary lines, the buyer should order a property survey.
What should you do with the preliminary title report?
In summary, always read the title report and its attachments. If there are questions, the buyer should contact their escrow agent or title examiner for clarification, or enlist the help of a lawyer. Real estate brokers are not qualified or allowed to give advice on title matters or interpret title reports. Still, they should be able to direct their buyer’s attention to matters of concern for further investigation.