The preliminary title report is provided by the title insurance company not long after escrow is opened. In Santa Clara County, unlike many parts of California, usually escrow is opened once a listing agreement is signed (not after a buyer is in contract to purchase the home). That means that the preliminary title report (sometimes called the “pre” or “prelim”) is ready to be viewed by the time the home goes on the market or shortly thereafer.
What is in the preliminary title report?
- Information on where escrow is opened (which company) and who the escrow officer is along with their contact info
- The form of title insurance anticipated by the report (there may be options available)
- Title – who the owners are, if it’s in a trust, an LLC, etc.
- Legal description of the property (assessor’s parcel number, address etc.). If it is is a property held in condo ownership, that will show as well.
- Info on any and all liens recorded against the property (mortgages, property taxes, supplemental taxes etc.)
- If there are any covenants, conditions and restrictions (CCRs)
- If there are any easements (usually there are at least public utility easements)
- A plat map of the property
- and a few more items….
Why does a prelim matter?
Reading a preliminary title report can feel like reading the white pages of a phone book – if you still have one of those lying around. But the info is crucially important!
The pre tells you who the owners are
First, it tells you whether or not the people selling the property actually own it. Yes, sometimes there are issues with this! The biggest challenge can be when two people are listed as owners on the MLS but in fact a third also has a share of ownership and must agree to any sale.
Sometimes the listing and disclosures all show just the names if individuals, when in fact the ownership is through a corporation or a trust. Those kinds of details can cause a big headache with your lender if they are not done correctly.
The preliminary title report provides info on how much may be owed on the home
A big issue during the downturn of 2008-2010 was whether or not the seller is “upside down” with the property. Let’s say the house or townhouse is offered for $1,500,000 but it looks like $1,480,000 is owed. Might be good to do some math. By the time commissions, transfer taxes, escrow and title insurance costs are added up, is there enough for the sale to go through? Or are you looking at a short sale? You may not get all of the answers from the prelim, but you will at least get the questions to ask.
Less dramatic, but also concerning, is whether or not the property taxes are current or delinquent. Has the seller not paid the taxes in a few years? Perhaps the seller is elderly and has an exemption that allows paying these taxes to be put off until the sale. Maybe the seller is in a financial bind. If you’re writing an offer, this is important info. You’ll be more concerned about the maintenance of the property if the taxes aren’t paid. You may feel that you are at an advantage if the seller needs to sell verses wants to sell.
The prelim can help you to understand what you’re buying
Some properties that are shaped like townhouses (or row houses) may be held in condo ownership, or they could be Planned Unit Developments. Legally they are quite different, and they are also quite different for the buyer’s lender. This information is also available in the preliminary title report. In Santa Clara County, there are even some detached houses which are condominiums, meaning they are held in condo ownership. Looking at the preliminary title report is key to knowing what you are buying.
For example, the Villas of Almaden include detached homes but they are condos. This is also true in Los Gatos on Ohlone Court.
The pre can also help you to understand where you’re buying
Another sensitive area is the property address. Sometimes the postal address is not the actual jurisdiction. For example, in Los Gatos, there are several areas where the postal or mailing address says Los Gatos, but in fact that parcel is in San Jose, Campbell, Saratoga, or a pocket of Santa Clara County – and not part of the town of Los Gatos at all.
There are lots of hidden issues which come to light in a preliminary title report. It’s wise to slow down, read it carefully, and ask questions. In recent years, the prelims often come with an electronic or ePre format that includes hotlinks to supporting documents, such as the CCRs. Most of the time, the links are not underlined but are in blue text. If you have a preliminary title report without those links, see if there’s an “ePre” available with the extra documents. It’s wise to read all of it while deciding if this is the property to buy (or if selling, to see if there’s anything which needs clearing up.
Related Reading on Preliminary Title Reports:
What is title insurance, and who pays for it?
Homeowner’s insurance, title insurance, and home warranties
