Very few people have a clear idea about what is a Preliminary Title Report or what is the purpose of such a report. Let us take a look and understand about a Preliminary Title Report with absolute clarity. Say after months and years of hard work you have finally decided to buy your perfect home. But is it perfect? Will you be buying just a perfect home or something more than that? Will you also be acquiring liens placed on the property by prior owners? Have documents been recorded that will restrict your use of the property?
A preliminary title report will allow you to review and get a clear understanding regarding matters affecting your property, prior to purchase, which are generally excluded from coverage under your title insurance policy.
A preliminary title report is not a bewildering concept, neither is it a simple disclosure document. A preliminary report is a report prepared by a title company before issuing a title insurance policy. This report reflects the ownership of a specific piece of land along with the lies and encumbrances that will not be covered under a subsequent title insurance policy.
So what role does it play in the real estate process?
Since it provides valuable information for both the buyer and seller, technically it should not be considered as a simple disclosure document. It is an offer of title insurance to a buyer or the buyer’s lender. This report contains the situations under which the title company will issue a particular type of title insurance policy. It provides information about the title defects, liens and encumbrances, which would be generally excluded from coverage. Hence you are aware about the different issues governing the real estate before purchasing it. The report may then be reviewed and discussed by the parties to a real estate transaction and their agents.
When and how is this report prepared?
Shortly after the escrow is opened, an order is generally placed with the title company, which will then begin the process involved in producing the report. Processing the report will involve review of certain 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. Lastly, the so-called ‘exceptions’ will remain as they are unless they are released or eliminated prior to the transfer of the title.
Important things that you should know about a Preliminary Title Report…
The deal does not close with the buyer and seller coming to an agreement. After the parties come to an agreement, but before the close of escrow, the preliminary title report needs review. Now it is surely not going to be one of those riveting documents that you will read, but you must thoroughly go through the document before closing on the deal.
You won’t see the legal description in any Realtor® marketing or advertising. It gives you the description of where your property is located and what are the exact dimensions of your property, the boundaries and so on. In the case of a condominium or planned unit development (PUD), the legal description will include the property’s interest in any common areas, exclusive or non-exclusive easements, and details on any parking or storage that conveys with the property.
On a title report the property taxes will always feature as the primary lien. Simply a property cannot be transferred to a new owner if there is any pending taxes or due left to be cleared. So read the document carefully regarding any unclear dues. As the top lien, they will indicate whether taxes are due or paid in full. Taxes must be settled before any debt holder gets paid.
Now coming to the mortgage liens, this lies just below the taxation part. Generally the mortgage lies are always ordered first, second, and third. The largest lien holder generally takes first position, though there are certain conditions where a secondary lien holder will be in first position. When the sell closes the lien must be paid in the order as mentioned in the preliminary title report. So one or more lenders will get “shorted” by the amount they’re owed. In order for the sale to close, the lender must agree to the short payoff.
Is a Preliminary Report the same thing as title insurance?
A huge number of people consider this preliminary title report as the title insurance. Remember that it is an absolute no!!! These two are absolutely different things. Though they might sound to be similar things; however, in reality, they are exceptions from the title insurance. A preliminary report is the statement of terms and conditions regarding the issue of a title insurance policy. No contract or liability exists until the title insurance policy is issued to a particular person.
You must understand the distinctions because of the following reasons. Firstly; no liability or contract will exist until and unless a title insurance policy is issued. So until it is issued it is like a null and void condition. Second, the title insurance policy is issued to a particular insured person and others cannot claim the benefit of the policy.
What is the procedure to clear the unwanted liens and encumbrances?
No one wants to keep unwanted lies and encumbrances under his/her property. So here is the importance and purpose of this document. Go through the document carefully to find put about the lies and encumbrances. If the title to the property is not clear, then the buyer must work with the seller or the seller agent to clear all the unwanted lies and encumbrances.
Will the preliminary report disclose the complete condition of the title to a property?
The answer to the question is a no. It is very important that you understand the fact that a preliminary title report is not a written representation as to the condition of title and might not list all liens, defects and encumbrances affecting title to the land. This report will only include the current ownership and the terms and conditions that the title insurance company might exclude from coverage if a title insurance policy should later be issued.
Who would be able to provide you with more information regarding this report in future?
None other than your real estate agent and your real estate attorney will help you in getting a clear understand of a Preliminary Title Report. They will help explain the preliminary report to you.
Few last words…
As a potential buyer you must always scrutinize your preliminary title report and make sure that your real estate agent and your real estate attorney also takes a thorough look at the document. You want the title to be delivered as clean as possible. It is perhaps the most important document is the purchase of a real estate, so never consider it with negligence. If there are disputes regarding the property or there are issues on the title that would affect your homeownership, you need to know and understand them thoroughly before you close. Remember once you close the escrow then nothing can be changed and you will be solely responsible for all the ill records of the land. So go through the document carefully, analyze it with care and successfully purchase a real estate with peace of mind…