Title Reports 101

What even is “title”?

Title is your legal right to own a specific property, including the right to use and sell that property at your discretion. 

What kinds of things can affect my Title to property?

Title is easily affected, often by known issues such as liens, covenants (CC&R’s), judgments, encumbrances, and restrictions. Title can also be affected by issues unknown to the owner such as unrecorded easements, outstanding lawsuits, or liens filed by third parties. These issues can limit your ownership rights or inhibit the sale of the property.

How can title impact my ability to sell my property?

“Clear” title is required to sell real property, which means that the property is free of recorded and unrecorded issues, and the seller can convey the property to the buyer without third-party claims to the title.

What is title insurance?

In order to ensure that a buyer is receiving clear title at the time of conveyance, the buyer is issued title insurance at the close of escrow. This protects the owner from financial loss sustained from issues in title to the property. Unlike traditional insurance, which protects against future events, title insurance protects against past events that can still affect title in property currently.

What is a preliminary title report?

Prior to issuing the title insurance policy, the title insurance company, working through an escrow company, will issue an offer to insure your title. The title/escrow officer will contain the terms and conditions to the policy before the transfer occurs. That “offer” is your preliminary title report. The preliminary title report shows ownership to the property, a chain or title, and known issues to title prior to conveyance. 

What are exceptions to title?

The preliminary title report lists the recorded defects as “exceptions” to the insurance policy. This means that the insurance company will not insure issues relating to these known defects at the time of sale. However, the buyer can work to remove some or all these non-standard exceptions from the title report prior to the transfer of title. This would limit the number of non-insurable defects in title.

What should I look for in a preliminary title report?

You should first look for the extent of your rights in a property, including the ownership interest, property description, and chain of title. You should also focus on the defects in title, shown as the “exceptions” on the report, which at the time of insurance issuance, will not be covered by title insurance moving forward. Therefore, you should work with your agent and escrow officer to clear unwanted exceptions from the title report. This helps you take full advantage of the coverage of the title insurance policy.