The preliminary title report is provided by the title insurance company not long after escrow is opened. In Santa Clara County, unlike most 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.
What’s in the pre?
- Information on where escrow is opened (which company) and who the escrow officer is
- The form of title insurance anticipated by the report
- Title – who the owners are, if it’s in a trust, 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 (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)
- Other liens, such as a deed of trust (what we think of as a mortgage)
- A plat map of the property
- and a few more items….
Why does it matter?
Reading a prelim 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! 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. “Ooops, we forgot that Mom or Dad is also on title!”
A big issue in recent years is whether or not the seller is “upside down” with the property. Let’s say the house or townhouse is offered for $500,000 but it looks like $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.
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 ePre format that includes links to supporting documents, such as the CCRs. If you have a preliminary title report, 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: