How Does Preliminary Title Report Work?

Once you find your dream home, it’s vital to ask yourself whether you will be buying more than just a stunning home. Will you also be getting liens placed on the house by prior owners, and have documents been recorded that will limit your use of the property?

The preliminary title report offers you the chance to review matters affecting your property before purchase which will be excluded from coverage under your title insurance policy unless removed before purchase.

In this article, we have answered some of the most common questions regarding preliminary reports to help you better understand this often confusing subject.

What Is a Preliminary Title Report?

The preliminary title report is a document that establishes legal ownership of a property, making it one of the most critical pieces of documentation involved in the home sale. A title company puts preliminary reports together to issue title insurance to the home buyer. With a preliminary title report, the buyer can have peace of mind that the individual selling the home owns 100% of the property and no other parties have a claim to it.

Preliminary title reports can be obtained by ordering from a title company or contacting the county assessor for $75-$250.

What Does a Preliminary Report Contain?

Preliminary reports can deliver critical information - they contain a detailed legal description of the property, any liens or debts against the property, and any restrictions regarding the use of the property. In addition, it contains the conditions under which the title company will issue a particular type of title insurance policy.

The preliminary report will offer you the chance to review matters affecting your property which will be excluded from coverage under your insurance policy unless removed or eliminated before your purchase.

Therefore, it will include any problems identified with the home title, title problems that will not be covered under the title insurance policy, and any actions required by the seller or owner to resolve issues with the title.

Why Are Preliminary Title Reports Important?

Preliminary title reports are vital to all parties within a real estate transaction - current owners, real estate agents, buyers, and title insurance companies.

Because some homeowner associations can have restrictions that regulate anything from additions (like pools) to exterior paint colors, to a maximum height of hedges, it’s important to review the report so that you’re aware of any limitations on the property before you decide to buy it. 

Note that if you are financing, the sale title insurance will most likely be required by your lender. And if any issues are uncovered during the discovery period, your title company will help you fix them before closing.

When and How Is the Preliminary Report Produced?

A preliminary title report is run during the escrow process, and it calls for the assembly and review of certain recorded matters relative to the property. Learn more about what an escrow company does and how to open an escrow account.

However, some sellers choose to run a preliminary title report before putting their home on the market.

The Difference Between a Preliminary Report and Title Insurance

A preliminary report is an offer to insure, not a report of an entire history of recorded documents related to the home. It’s a statement of the terms and conditions of the offer to issue a title insurance policy. However, it isn’t a representation of the condition of the title.

These differences are vital because no contract or liability exists until the title insurance policy is issued and the title insurance policy is issued to an insured individual, and others can’t claim the benefit of this policy.

How Much Does Title Insurance Cost?

The cost of a title insurance policy varies by state and is based on factors like the lender, purchase price of the home, and down payment amount. Regardless of where you purchase your policy, having one will help you recover financial losses in the event of a total loss of the property due to an error in the title report.

The Bottom Line

After reading this article, you have a good idea of what a preliminary title report is and what it offers to buyers. Having this type of documentation can protect you from issues related to real estate transactions.

If you are planning to buy real property and need the help of a professional, Lightspeed Escrow can help you. In case you still have questions, contact us for any additional information, and we’ll be glad to help.