The home buying process is, by its very nature, a
complex transaction. Title Insurance is an important
part of the real estate transaction since it insures
you that all liens placed against the prior owners
of the property, or documents that will restrict
your use of the property, have been fully disclosed
to you.
A Preliminary Title Report provides you with an
opportunity to review any impediments that would
prevent clear title from passing to you.
When reviewing a Preliminary Title Report, it is
important to check the extent of the ownership
rights or interest you will be acquiring. The most
common form of ownership interest is 'fee simple' or
'fee,' which is also the highest form of interest an
owner can have in real estate. Liens, restrictions,
and interests of others will be listed numerically
as exceptions in the report.
You may also have to consider interests of third
parties, such as easements granted by prior owners,
which limit use of the property. Some buyers attempt
to clear these unwanted items prior to purchase. A
list of standard exceptions and exclusions not
covered by the title insurance policy is also
attached. This section includes items the buyer may
want to investigate further, such as laws governing
building and zoning.
What Is Title Insurance?
Title Insurance insures owners that they are
acquiring marketable title to the property. Unlike
casualty insurance policies which insure against
future events, title insurance is designed to
eliminate risk or loss caused by title defects from
past events. Title insurance provides coverage only
for title problems that were in existence at the
time the policy was issued.
A title insurance policy is a contract of indemnity
that guarantees that the title is as reported. If it
isn't, and the owner is damaged at a later date, the
title policy covers the insured for loss up to the
face amount of the policy.
What Is A Title Search?
Issuing a title insurance policy is an extensive and
exacting process. Title insurance companies work to
eliminate risks by performing a painstaking search
of the public records, or the title company's own
"plant", where public records, laws, and court
decisions pertaining to the property and the parties
to the escrow are maintained. This is done to
determine the current recorded ownership, recorded
liens or encumbrances, and other matters of record
which could affect the title to the property. Once a
title search is complete, the title company issues a
Preliminary Title Report detailing the current
status of title.
What Is A Preliminary Title Report?
A Preliminary Title Report contains vital
information which may affect the willingness and the
ability of the parties to close an escrow.
Information includes ownership of the subject
property, the manner in which the current owners
hold title, matters of record which specifically
affect the subject property or the owners of the
property, as well as a legal description of the
property and an informational plat map.
The Preliminary Title Report indicates the type of
title insurance to be offered by the title company,
and the exclusions and exceptions from coverage
based on the type of title insurance policy the
company intends to issue. Exclusions and exceptions
can include items such as: recorded deeds of trust,
easements, agreements, and covenants conditions and
restrictions, commonly referred to as CC&Rs.
What Should Be Looked For In A
Preliminary Title Report?
As your real estate representative, we will review
the Preliminary Title Report as soon as it is
issued, paying particular attention to the following
items:
Verifying the ownership vesting by insuring
that the names on the report are the same as the
names on the purchase contract. Sometimes the
name of an unexpected owner will appear (i.e. a
previous spouse or relative who died), and
corrective documents may be required.
Verifying that the property address, the
plat map, and legal description all match. An
owner could own two properties adjacent to, or
across the street from, each other, causing
confusion in identifying the correct property.
Reading the informational notes for
pertinent items about the property, such as:
transfer taxes, monument fees, homeowners'
association fees, etc.
Carefully reviewing the exceptions. Common
exceptions include: current taxes, bonds, deeds
of trust, Mello-Roos Assessment District items,
CC&Rs, and easements. Be sure the CC&Rs or
existing easements don't interfere with the
buyer's future plans. For example, an easement
across the backyard could have a profound effect
on the buyer's ability to add a swimming pool at
a later date.
Always looking for surprises. If you can't
locate an easement, or an unexpected deed of
trust shows up, or you see an item you weren't
aware of before, immediately call the escrow
officer or title company to discuss the matter.
The title company should be a problem solver,
and top-notch escrow officers and title
companies go out of their way to resolve quickly
the majority of "red flag" items. However, the
responsibility for early detection and
resolution of problems falls on the entire
escrow team, including the agents, the escrow
and title company, and sometimes the buyers and
sellers as well.
What Is Covered?
Not all risks can be eliminated by a title search,
since certain "hidden defects", such as forgeries,
identity of persons, incapacity, incompetency, and
failure to comply with the law, cannot be disclosed
by an examination of the public records. While the
Preliminary Title Report is an offer to insure under
certain circumstances, the Title Insurance Policy is
a contract, providing coverage against such "hidden
defects."
In addition to indemnifying the insured against
losses which result from a covered claim, the policy
also provides for legal fees and defense for future
claims against the property.
Extended owners' and lenders' policies of title
insurance provide broader coverage and are available
through the American Land Title Association (ALTA).
Coverage is extended to certain matters that are
"off-record", but which are generally discoverable
by an inspection of the property or by questioning
the parties in possession. These include:
Unrecorded liens and encumbrances
Unrecorded easements
Unrecorded rights of parties in possession
Encroachments, discrepancies, or conflicts
in the boundary lines
ALTA policies are available for owners and lenders,
and a "plain language" ALTA Residential Policy is
also available for residential property containing
one to four units.
Agents, buyers, and sellers should not assume that
all title insurance policies and title companies are
the same. They aren't, and it is important to ask
questions of your title company to determine the
type and cost of coverage available.
