The preliminary title report is an important document that provides a legal property description, information about current owners, and insight into the history of the property. It provides a record of any documents recorded against the property address in the public record including items like use restrictions, easements, or other matters of public record that may affect your ability to use and enjoy your property. A prelim title report is created in preparation for title insurance being issued. Title insurance, in a nutshell, is insurance that protects your ability to use and enjoy your property.
// This post is a part of our series: Your Guide to a San Francisco Disclosure Package //
The Preliminary Title Report is a *property specific* disclosure. It is a very important disclosure to review.
Title insurance is defined at Wikipedia as:
Title insurance is a form of insurance predominantly found in the United States which insures against financial loss from defects in title to real property. It is meant to protect an owner’s or a lender’s financial interest in real property against loss due to title defects, liens or other matters. It will defend against a lawsuit attacking the title as it is insured, or reimburse the insured for the actual monetary loss incurred, up to the dollar amount of insurance provided by the policy. The first title insurance company, the Law Property Assurance and Trust Society, was formed in Pennsylvania in 1853.
In California, if you are purchasing a home with a mortgage you will be expected to buy two policies – an owner policy that insures you (at your purchase price amount) and a lender policy that insures your lender (for the amount of the loan).
Preliminary title reports are provided by the title company that is acting as the escrow agent for the transaction. The sample we are using in this example is for a single family listing we had at 119 Bridgeview in San Francisco. Page 1 identifies as the report as a preliminary title report, and includes information about the insurance company issuing title insurance as well as the date at which the title report was created.
Every title report will identify the type of land purchase being made. It will almost always be a fee simple purchase. A title report will also identify the current owners and provide the legal description of the property. After all of that, it begins with the list of exceptions, which are items that title insurance will not cover. There are a list of very typical exceptions that we expect to see on a title report, and what we are looking for is anything that isn’t a “typical exception.”
On our sample page 2, the list of exceptions begins with property taxes – which are exceptions 1, 2, and 3 on the sample report we are reviewing. Property taxes are always an exception – you can never expect your title company to pay them for you or protect you from not paying them. In our case, item #1 is for the next tax year, item #2 is for the current tax year, and item #3 is for any supplemental tax bills issued.
Item 4 on the next page is the Mello Roos exception – in San Francisco we have a Mello Roos assessment to our taxes that was assessed after Loma Prieta. Below that, item #5 is another “typical exception” for San Francisco which is a sustainable financing program that was designed to allow people to make environmental upgrades to their home and finance them. However, the way the program was implemented creates an issue with getting loans that conform to national underwriting standards, and I’m not aware of the program actually being active or used because of the issues it creates.
Item 6 is for the covenants, conditions, and restrictions (CC&Rs) that have been recorded against the property and contains rules that affect what you can do with your home. A condo will always have CC&Rs, and many single family homes in SF are in neighborhoods that have neighborhood use restrictions. If we wanted to read a copy of the CC&Rs that affect this property (which we would, if we were the buyer), we could click on the blue link in the title report for the recorded copy.
Items 7 and 8 on this sample preliminary title report are the current deeds of trust (mortgages) on the property. If you are making a purchase you want to be sure that the payoff amounts from the sale will be enough to fully payback the existing loans. If it won’t be enough, either the seller is doing a short sale or bringing money to the closing to make up the difference. If you are purchasing with financing, your mortgage(s) will replace the existing mortgage when your loans fund and the purchase closes.
That’s a very quick overview of a prelim title report. We’ve reviewed what title insurance is and what a typical preliminary title report and exceptions look like in San Francisco. We’ve seen a lot of interesting things on title reports over the years, and it is a very important document to review with your agent.