Why Do You Need Title Insurance?
Real Estate Ownership
Real Estate ownership is evidenced through a document called a title, and for every piece of property there should be a consistent chain of title showing who owned the land at all times. Before your lender will extend credit for your mortgage, they will want to know the history of the title to the property.
Protecting Your Investment
The purchase of a home will most likely one of the most expensive purchases you will ever make. A title insurance policy protects you and your mortgage lender against losses that occur when you discover after closing that someone else can claim ownership of the property.
Title insurance companies are to make sure your property is clear. Title insurance companies search public land records affecting property.
Here are some many ways that documents can present concerns:
Deeds, wills and trusts that contain improper wording or incorrect names;
Forged deeds, mortgages, satisfactions or releases;
Incorrect marital statements;
Outstanding mortgages and judgments, or liens against the property;
Incorrect survey (misstating location, dimensions, area, easements or improvements upon land);
Improperly delivered deeds;
Pending legal action against the property that could affect a purchaser; or
Incorrect notary acknowledgments.
What is a Preliminary Report?
Preliminary reports are issued only after a thorough search and evaluation of public records. The preliminary report shows any liens or judgments against the property. It shows any unpaid loans or taxes, any rights of way or easements that have been granted on the property or any other encumbrances that may "cloud" title to the property.
What Role does a Preliminary Report take?
It contains the conditions under that the title company will issue a particular type of title insurance policy.
The preliminary report lists, in advance of purchase, title defects, liens and encumbrances that would be excluded from coverage if the requested title insurance policy were to be issued as of the date of the preliminary report. The report may then be reviewed and discussed by the parties to a real estate transaction and their agents.
It provides the opportunity to seek the removal of items in the report that are objectionable to the buyer prior to purchase.
When and how is the Preliminary Report produced?
After a title order has been placed, matters relative to the title policy coverage on the subject property are assembled in a title search package and examined. This process calls for the review of certain recorded matters relative to both the property and the parties to the transaction.
This is when the Preliminary Report is prepared and sent to the customer. The report contains relevant information so that the parties to the transaction will become aware of matters that will not be insured against by the title company. This report is issued before the title policy.
Such matters include a deed of trust recorded against the property or a lien recorded against the buyer or seller for an unpaid court award or unpaid taxes.
These recorded matters are listed numerically as "exceptions" in the preliminary report. They will remain exceptions from title insurance coverage unless eliminated or released prior to the transfer of title.
What should I look for when reading my Preliminary Report?
You will be interested, in the extent of your ownership rights. This means you will want to review the ownership interest in the property you will be buying as well as any claims, restrictions or interests of other people involving the property.
The report will note in a statement of vesting the degree, quantity, nature and extent of the owner's interest in the real property. The most common form of interest is "fee simple" or "fee" which is the highest type of interest an owner can have in land. Liens, restrictions and interests of others that are being excluded from coverage will be listed numerically as "exceptions" in the preliminary report. These may be claims by creditors who have liens or liens for payment of taxes or assessments. There may also be recorded restrictions that have been placed in a prior deed or contained in what are termed CC&Rs -- covenants, conditions and restrictions. Finally, interests of third parties are not uncommon and may include easements given by a prior owner that limits your use of the property. When you buy property you may not wish to have these claims or restrictions on your property. Instead, you may want to clear the unwanted items prior to purchase.
In addition to the limitations noted above, a printed list of standard exceptions and exclusions listing items not covered by your title insurance policy may be attached as an exhibit item to your report. Unlike the numbered exclusions, which are specific to the property you are buying, these are standard exceptions and exclusions appearing in title insurance policies. The review of this section is important, as it sets forth matters which will not be covered under your title insurance policy, but which you may wish to investigate, such as governmental laws or regulations governing building and zoning. The preliminary report is not a written representation as to the condition of title and may not list all liens, defects, and encumbrances affecting title to the land, but merely report the current ownership and matters that the title company will exclude from coverage if a title insurance policy should later be issued.
Is a Preliminary Report the same thing as title insurance?
Definitely not.
It is an offer to insure, it is not a report of a complete history of recorded documents relating to the property. It is a statement of terms and conditions of the offer to issue a title insurance policy, not a representation as to the condition of title.
These are important for the following reasons: first, no contract or liability exists until the title insurance policy is issued; second, the title insurance policy is issued to a particular insured person and others cannot claim the benefit of the policy.
Can I be protected against risks prior to the closing?
Yes, you can. Title companies can protect your interest through the issuance of "binders" and "commitments."
A binder is an agreement to issue insurance giving temporary coverage until such time as a formal policy is issued.
A commitment is a title insurer's contractual obligation to insure title to real property once its stated requirements have been met.
Discuss with your title insurer the best means to protect your interests.
How do I go about clearing unwanted liens and encumbrances?
Should the title to the property have a gray area, you and your agent will work with the seller and the seller's agent to clear the unwanted liens and encumbrances prior to taking title.
Who can I turn to for further information regarding Preliminary Reports?
Your real estate agent and your attorney, should you choose to use one, will help explain the preliminary report to you. Your escrow and title company can also be helpful sources.
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