A preliminary title report is one of the most important documents in a real estate transaction. It helps identify ownership details, existing liens, easements, and other issues that could affect a property’s title before closing. Understanding how to read this report allows real estate agents to guide their clients with confidence and address potential title concerns early in the process.
What a Preliminary Title Report Is
A preliminary title report, often called a prelim, is an official offer to issue a title insurance policy. It summarizes a public records search conducted by a title underwriter after escrow opens.
The report identifies the current legal owner of a property and lists any active claims against it, such as tax liens, outstanding mortgages, utility easements, and Covenants, Conditions, and Restrictions (CC&Rs).
A prelim is not a complete history of the title and is not a guarantee. It is a disclosure document that lets the buyer and lender know about existing claims before funds are transferred.
Why a Preliminary Title Report Matters
A preliminary title report helps identify potential title issues before a real estate transaction closes. It gives buyers, sellers, lenders, and real estate agents a clear picture of the property’s ownership and any recorded claims that may affect the sale.
Reviewing the report early allows problems such as unpaid liens, easements, or ownership disputes to be resolved before they delay closing. It also helps buyers understand any legal restrictions tied to the property before they complete the purchase.
Key Sections of a Preliminary Title Report
Title service companies use a standardized format, which makes it easier to locate specific information.
Schedule A
This section covers the basic details of the proposed policy, including the effective date of the search, the type of policy (such as an ALTA Homeowner’s Policy), the current legal owner, and the legal description of the property. Agents should compare this section against the purchase contract.
Schedule B
This section lists the exceptions to coverage, meaning the items the title company will not cover if a dispute arises later. It typically includes:
- Active mortgages the seller must pay off at closing
- The property’s current tax status
- Utility easements that allow access to the land
- CC&Rs that may affect HOA rules, home appearance, or parking
Resolving Title Issues
If a preliminary title report shows a lien or other issue, the transaction cannot close until it is resolved.
- The title company requires a formal payoff demand from any lienholder before the title can be cleared. For example, if a mechanic’s lien from a past renovation appears on the report, the seller must pay it off from the sale proceeds.
- If an old mortgage still appears on the report due to a clerical error, the escrow officer must obtain a formal reconveyance from the original lender.
- Once resolved, the title company issues a supplemental report showing the item removed.
FAQs
What is the difference between a preliminary title report and title insurance?
The preliminary title report discloses current claims on a property and the conditions for issuing insurance. Title insurance is the policy itself, which takes effect at closing and protects the buyer and lender against title defects that were not discovered during the search.
How long does it take to get a preliminary title report?
Typically three to five business days after escrow opens, depending on the property’s history and how quickly county records can be accessed.
Can a buyer cancel escrow based on the prelim?
Yes, if the purchase agreement includes a title contingency. If the seller cannot resolve a lien or other issue that affects the property, the buyer can cancel escrow and receive their earnest money deposit back.
Do easements on a preliminary title report expire?
No, easements generally do not expire automatically. Most attach to the land and transfer with ownership. Agents should review the location of easements with clients to check for any effect on future building or landscaping plans.
Disclaimer: This blog is for general informational and educational purposes only and does not constitute legal, tax, financial, or professional advice. Readers should consult their own qualified attorney, CPA, financial advisor, or other professionals before making any decisions. Nesi Title and Escrow Company makes no warranties and assumes no liability for reliance on this content.
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