When buying or selling a home, one crucial document to pay attention to is the preliminary title report, also known as a “prelim”. While it might seem like a lot of confusing information packed into one report, it plays a critical role in protecting everyone involved in a real estate transaction.
So, what is a prelim, and why should you care? Let’s break it down.
What Is a Preliminary Title Report?
A preliminary title report is a document prepared by a title company early in the escrow process. It provides a detailed look at the legal status of the property’s title and reveals any existing issues that could affect ownership.
It includes information such as…
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Current legal owner(s) of the property.
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Liens (like unpaid mortgages or taxes).
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Easements (rights others may have to use a portion of the property).
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Property taxes owed.
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Any restrictions or covenants on the property.
Why Is the Preliminary Title Report Important?
One of the main purposes of a prelim report is to reveal potential red flags before closing. If there’s a problem, like an old lien, an unpaid contractor bill or an ownership dispute, it gives everyone a chance to resolve it before the transaction is finalized.
For buyers, it ensures you’re purchasing a property with clear ownership, free of legal baggage that could cause headaches later. For sellers, it gives you the chance to clear up any issues that could delay or derail a sale.
When Do You Receive the Preliminary Title Report?
You’ll typically receive the preliminary title report shortly after escrow is opened, often within a few days. This gives all parties time to review the report, ask questions and make sure everything is in order before proceeding to closing.
Key Sections of the Report (And What to Look For)
Here are some of the most important parts of the report and why they matter:
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Legal Description: The technical layout of the property (not the same as your street address). This confirms what you’re actually buying or selling.
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Ownership Vesting: Who currently holds title to the property and how it’s held (joint tenants, trust, etc.).
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Liens and Encumbrances: Any debts or claims against the property, like unpaid loans or tax liens.
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Easements: Rights others may have to use parts of the property (for example, utility companies or shared driveways).
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Conditions, Covenants & Restrictions (CC&Rs): Rules that may govern the property, especially common in HOAs or newer developments.
Comparing Preliminary Title Reports and Final Title Reports
While a preliminary title report provides an initial overview of a property’s title, a final title report offers a more comprehensive examination of the property’s title history, including the property’s ownership, past transfers and a thorough search of public records. The main difference between the two is that the final title report is issued after the home sale is completed, confirming that any issues identified in the prelim have been resolved.
Final title reports officially transfer ownership to the buyer, confirming they hold clear title to the property. The final title report also comes with optional title insurance that the buyer can choose to purchase, which provides coverage and financial protection in case of any undiscovered issues that may arise in the future.
Always Read the Fine Print
The preliminary title report may not be the easiest read, but it’s one of the most important. It protects your investment, reduces surprises and ensures a smoother transaction for everyone involved. If you’re ever unsure about what you’re reading, don’t hesitate to ask your real estate agent or title officer to walk you through it.
