Page 21 - Home Buyers and Sellers Handbook English - California

What should I look for when reading my Is a Preliminary Report the same thing as title
Preliminary Report? insurance?

A. You will be interested, primarily, in the extent of Definitely not. A preliminary report is an offer to
your ownership rights. This means you will want to insure, it is not a report of a complete history of
review the ownership interest in the property you will recorded documents relating to the property. A
be buying and the description of the property, as well preliminary report is a statement of terms and
as any claims, restrictions or interests of other people conditions of the offer to issue a title insurance policy,
involving the property. not a representation as to the condition of title.

The report will note in a statement of vesting the These distinctions are important for the following
degree, quantity, nature and extent of the owner’s reasons: first, no contract or liability exists until
interest in the real property. The most common form the title insurance policy is issued; second, the title
of interest is “fee simple” or “fee” which is the highest insurance policy is issued to a particular insured
type of interest an owner can have in land. person and others cannot claim the benefit of
the policy.
Liens, restrictions and interests of others which
are being excluded from coverage will be listed Can I be protected against title risks prior to
numerically as “exceptions” in the preliminary report. the close of the real estate transaction?
These may be claims by creditors who have liens or Yes, you can. Title companies can protect your
liens for payment of taxes or assessments. There may interest through the issuance of “binders”
also be recorded restrictions which have been placed and “commitments.”
in a prior deed or contained in what are termed
CC&Rs--covenants, conditions and restrictions. A binder is an agreement to issue insurance giving
Finally, interests of third parties are not uncommon temporary coverage until such time as a formal policy
and may include easements given by a prior owner is issued. A commitment is a title insurer’s contractual
which limit your use of the property. When you buy obligation to insure title to real property once its
property you may not wish to have these claims or stated requirements have been met.
restrictions on your property. Instead, you may want
to clear the unwanted items prior to purchase. Discuss with your title insurer the best means to
protect your interests.
In addition to the limitations noted above, a printed
list of standard exceptions and exclusions listing How do I go about clearing unwanted liens
items not covered by your title insurance policy and encumbrances?
may be attached as an exhibit item to your report. You will wish to carefully review the preliminary report.
Unlike the numbered exclusions, which are specific Should the title to the property be clouded, you and
to the property you are buying, these are standard your agents will work with the seller and the seller’s
exceptions and exclusions appearing in title insurance agents to clear the unwanted liens and encumbrances
policies. The review of this section is important, as prior to taking title.
it sets forth matters which will not be covered under
your title insurance policy, but which you may wish to Who can I turn to for further information
investigate, such as governmental laws or regulations regarding Preliminary Reports?
governing building and zoning. Your real estate agent and your attorney, should you
Will the Preliminary Report disclose the choose to use one, will help explain the preliminary
complete condition of the title to a property? report to you. Your escrow and title company can also
be helpful sources.
No. It is important to note that the preliminary report
is not a written representation as to the condition CONCLUSION: In a business which is directed at
of title and may not list all liens, defects, and risk elimination, the efforts leading to the production
encumbrances affecting title to the land, but merely of the preliminary report, which is designed to
report the current ownership and matters that the facilitate the issuance of a policy of title insurance, is
title company will exclude from coverage if a title perhaps the most important function undertaken.
insurance policy should later be issued.

Reprinted with permission from the California Land
Title Association.

18