Whether purchasing your first home or investing in real estate, understanding the paperwork involved is crucial to protecting your investment. One of the most essential documents you’ll encounter during the escrow process is the Preliminary Title Report (Prelim). This report outlines the legal status of a property’s title. It reveals any potential issues that might affect your ownership rights. In this guide, we’ll break down the sections of a Preliminary Title Report and show you how to read it effectively.
What Is a Preliminary Title Report?
A Preliminary Title Report is issued by a title company after a title search. It’s not an insurance policy but a preview of what will be covered—and excluded—if a title insurance policy is issued. The report details the ownership history, legal description, recorded liens, easements, and other encumbrances tied to the property.
It is critical to review this document carefully before closing the transaction. Doing so ensures that no surprises could impact your ownership rights or the property’s value.
Why It Matters
The title report protects all parties in a real estate transaction:
- Buyers confirm the seller’s legal right to sell the property and learn of any limitations on its use.
- Lenders verify that the property provides acceptable collateral.
- Sellers use the report to clear up any title issues before the sale.
Ignoring the information in a Prelim could result in future legal disputes, financial loss, or even the inability to sell the property later.
Key Sections of a Preliminary Title Report
Reading a Prelim can seem daunting, especially with its legal jargon. Here’s how to break it down:
1. Title/Escrow Information
This top section includes:
- Order number
- Escrow officer and contact info
- Property address
- Buyer’s and seller’s names
- Title company details
This section is primarily administrative, but it ensures you’re reviewing the correct report.
2. Legal Description of the Property
This part gives a technical description of the property’s location, shape, and boundaries—often using lot and tract numbers or metes and bounds.
While it may be challenging to interpret without a surveyor’s map, this must match the property you’re buying. Any mismatch could indicate a serious issue.
3. Vesting (Ownership Information)
The vesting section outlines the current owners of the property and how they hold title (e.g., joint tenants, tenants in common, individual ownership, etc.).
This is key to verifying that the people selling the property are legally entitled to do so. Further documentation may be needed if a name is missing or a trust or deceased person is listed.
4. Liens and Encumbrances (Schedule B – Section I)
This is the heart of the title report. It includes all items that must be cleared before title insurance can be issued, such as:
- Existing loans or mortgages
- Unpaid property taxes
- Mechanic’s liens
- Court judgments or lawsuits
- IRS or state tax liens
Any liens listed here must be resolved by the seller before or at closing. If they are not resolved, they could become the buyer’s responsibility.
5. Exceptions and Exclusions (Schedule B – Section II)
This section lists items that the title insurance policy will not cover. These might include:
- Easements (utility access, shared driveways)
- Covenants, Conditions & Restrictions (CC&Rs) from homeowners’ associations
- Encroachments
- Mineral rights or oil leases
While these do not prevent the sale, they limit the buyer’s use of the property. For example, an easement might grant a neighbor legal access to part of your land, which could affect privacy or future development.
6. Easements and Rights-of-Way
Many properties have utility easements that allow companies to install and maintain power, water, or sewer lines. These are usually acceptable, but unusual or poorly located easements can affect fencing, building, or landscaping plans.
Check maps or ask the title company where these easements lie on the property.
7. CC&Rs and Restrictions
Suppose the property is part of a subdivision or HOA. In that case, you’ll often find a recorded set of CC&Rs—rules governing how the property can be used. These may cover:
- Architectural guidelines
- Parking restrictions
- Landscaping requirements
- Short-term rental prohibitions
Review these documents closely to ensure you can use the property as you intend, especially if planning renovations, running a business, or renting the home.
Red Flags to Watch For
While many items on a Preliminary Title Report are standard, some should raise concern:
- Unknown liens or claims not disclosed by the seller
- Ownership by a deceased person, estate, or trust with unclear authority
- Pending lawsuits involving the property
- Unusual easements or access issues (e.g., landlocked lots)
- Discrepancies in the legal description from the purchase agreement
If any of these appear, speak to your real estate agent, title officer, or attorney before proceeding.
How to Address Title Issues
If the report uncovers problems:
- Request clarification from the title officer. They can explain terms and help resolve minor issues.
- Have the seller resolve outstanding liens or judgments before closing.
- Negotiate repairs or price adjustments if an encumbrance limits your use of the property.
- Order a survey if boundary questions arise.
- Consult a real estate attorney if a legal dispute or title defect is complex.
Final Steps Before Closing
After reviewing the Prelim, confirm that:
- The seller is the rightful owner.
- All liens will be paid off at or before closing.
- No exclusions interfere with your intended use.
- The legal description matches your expectations.
Once everything checks out, the title company will issue a final title insurance policy at closing. This protects you and your lender against future claims based on undisclosed issues.
Conclusion
Reading a Preliminary Title Report is one of the most critical steps in a real estate transaction. It gives you a transparent view of the property’s legal standing and helps you make informed decisions. While many issues can be resolved before closing, failing to read the report carefully could cost you thousands or even result in losing your property rights.
Always take the time to review the document in detail, ask questions, and consult professionals if anything is unclear. With proper diligence, you can close your transaction confidently and enjoy peace of mind in your new property.
Learn more about our comprehensive title insurance services here.
Thank you for reading! If you enjoyed this article and want to explore more content on similar topics, check out our other blogs at Sonic Loans, Sonic Realty, and Sonic Title. We have a wealth of information designed to help you navigate the world of real estate and finance. Happy reading!
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