Page 17 - California Home Buyers Handbook

What should I look for when reading my Preliminary Report?

A. You will be interested, primarily, in the extent of your ownership rights. This means you will want to review the
ownership interest in the property you will be buying and the description of the property, as well as any claims,
restrictions or interests of other people involving the property.
The report will note in a statement of vesting the degree, quantity, nature and extent of the owner’s interest in the
real property. The most common form of interest is “fee simple” or “fee” which is the highest type of interest an
owner can have in land.

Liens, restrictions and interests of others which are being excluded from coverage will be listed numerically as “ex-
ceptions” in the preliminary report. These may be claims by creditors who have liens or liens for payment of taxes or
assessments. There may also be recorded restrictions which have been placed in a prior deed or contained in what
are termed CC&Rs--covenants, conditions and restrictions. Finally, interests of third parties are not uncommon and
may include easements given by a prior owner which limit your use of the property. When you buy property you may
not wish to have these claims or restrictions on your property. Instead, you may want to clear the unwanted items
prior to purchase.

In addition to the limitations noted above, a printed list of standard exceptions and exclusions listing items not
covered by your title insurance policy may be attached as an exhibit item to your report. Unlike the numbered exclu-
sions, which are specific to the property you are buying, these are standard exceptions and exclusions appearing
in title insurance policies. The review of this section is important, as it sets forth matters which will not be covered
under your title insurance policy, but which you may wish to investigate, such as governmental laws or regulations
governing building and zoning.

Will the Preliminary Report disclose the complete condition of the title to a property?
No. It is important to note that the preliminary report is not a written representation as to the condition of title and
may not list all liens, defects, and encumbrances affecting title to the land, but merely report the current ownership
and matters that the title company will exclude from coverage if a title insurance policy should later be issued.

Is a Preliminary Report the same thing as title insurance?

Definitely not. A preliminary report is an offer to insure, it is not a report of a complete history of recorded docu-
ments relating to the property. A preliminary report is a statement of terms and conditions of the offer to issue a title
insurance policy, not a representation as to the condition of title.

These distinctions are important for the following reasons: first, no contract or liability exists until the title insurance
policy is issued; second, the title insurance policy is issued to a particular insured person and others cannot claim
the benefit of the policy.

Can I be protected against title risks prior to the close of the real estate transaction?
Yes, you can. Title companies can protect your interest through the issuance of “binders” and “commitments.”

A binder is an agreement to issue insurance giving temporary coverage until such time as a formal policy is issued.
A commitment is a title insurer’s contractual obligation to insure title to real property once its stated requirements
have been met.

Discuss with your title insurer the best means to protect your interests.
How do I go about clearing unwanted liens and encumbrances?

You will wish to carefully review the preliminary report. Should the title to the property be clouded, you and your
agents will work with the seller and the seller’s agents to clear the unwanted liens and encumbrances prior to taking
title.

14