Early in the escrow process the title company will issue a “Preliminary Title Report”. With many Purchase Agreements used in Sonoma County, the Seller is required to supply this to the Buyer within 7-days of the date of the agreement. The Preliminary Title Report is an “offer” from the title company to issue title insurance, should the buyer choose to do so. The Preliminary Title Report also provides you with an opportunity to be aware of any issues with your ownership of the property BEFORE you buy it. The Preliminary Title Report will show the RECORDED current ownership of the property as well as any recorded liens, or encumbrances. The Preliminary Title Report is NOT the same thing as a title policy. The title company is not obligated to protect you until they have issued a policy covering the property. The policy will come later. For now, one of the key items to focus on in the Preliminary Title Report is the list of “Exclusions, or Exceptions”. This is a list of known encumbrances or liens that WILL NOT be covered by the title policy. You must read this list of exclusions and understand if they adversely affect your property rights.
Examples of exclusions that most buyers would object to include; having an un-paid contractor lien against the property, or unpaid taxes past due, or a pending court action against the property. With exclusions like this, many buyers would notify the seller that unless the problems are cleared-up (by the seller), the Buyer will cancel the agreement. An example of an exclusion that most buyers would not object to are Codes Covenants and Restrictions; CC&Rs. These are restrictions on property use that are designed to protect the value of the property. Most people think these are a good thing. Because these are KNOWN restrictions on the use of the property, the title policy does NOT protect the owner against these restrictions. In most cases the buyer simply agrees to abide by them. There are other types of policy exclusions that often show up in the preliminary report and reading and understanding each of the title policy “exclusions” is important. Your escrow officer can explain any exclusion you do not understand.