What is a Preliminary Title Report?

If you are in the real estate market to buy or sell your home, perhaps you have asked yourself this question. A preliminary report is issued during due diligence and closing, outlining what will and will not be covered under the future title insurance policy.

It is a document that establishes the parameters of what will and will not be covered under the title insurance policy, in other words, what financial losses will not be covered. It also attests to the ownership of the property or any encumbrances or ownership claims associated with it. 

Why Understanding a Title Report is So Important

In our over 2500 real estate transactions in Texas at Bright Bid Homes, the one lesson that we emphasize to all real estate investors, large and small, new and seasoned, is to be careful with any title issues. Be sure you are getting a clean title as closing with title problems a formula for financial and management pain down the road.

For example, in our experience, families often squabble over how to divide up the cash proceeds if a relative like a grandmother or grandfather passed away and left the house with no will. It is paramount to do a full review of the prelim title report to see what issues are still associated with the property for sale. In other words, it might be a good deal, but be sure the deal is actually real. Do your research and work on the front end to save huge expenses and headaches on the back end after closing.

Key Components of a Preliminary Title Report

When seeking to understand everything you need to know about your preliminary title report, you will want to be aware of five key components so you can make informed decisions.

These five key components in the disclosure packet are the legal description of the property, property ownership information, easements and rights of way, encumbrances and liens, and covenants, conditions, and restrictions (CC&Rs). 

• Legal description – This section of the report includes the property’s address, boundary details, and its official description as recorded in county documents. For condominiums, it may also cover details about shared areas like parking and easement.

• Official County Websites for Property and Title Records – we often go straight to the source for the information that is needed. For example, for Dallas and Fort Worth, we visit their county websites directly here:
  • Dallas County Appraisal District (DCAD) – https://www.dcad.org
  • Tarrant County Appraisal District (TAD) for Fort Worth – https://www.tad.org

• Ownership information – Ownership of a property pertains to specific paperwork and information like a plat map regarding and asserting current ownership rights of the property. However, within this section, a preliminary title report may also include information about ownership history and previous owner’s name, etc.

• Easements and rights of way – Easements and rights of way refer to restrictions placed upon the property and its use.  For a deeper understanding of easements and how they affect property rights, see this detailed explanation from the Legal Information Institute at the Cornell Law School.

• Encumbrances and liens – Encumbrances and liens are closely connected to (and can include) easements and rights of way. However, encumbrances and liens include more. For instance, in this portion of a prelim title report, you may also see matters from tax records related to local government issues like outstanding debts from unpaid property taxes and lien holders. Most states offer online access on how to check for property liens. For example,
  • Texas Secretary of State – UCC search
  • California Lien Search Resource online

• Covenants, conditions, and restrictions (CC&Rs) – Covenants, conditions, and restrictions (CC&Rs) are directly related to properties that are a part of a homeowner’s association (HOA) or a planned unit development (PUD). HOAs, PUDs, and the CC&Rs that govern them often consist of limitations surrounding the use of property. The buyer may also see overdue HOA or PUD fees that must be assessed upon the purchase of the property.

How to Read a Title Preliminary Report

Due to the drastic implications of some of the material that can potentially be found within a preliminary title report, it is imperative that homebuyers know how to read these reports. It is essential that homebuyers review the legal description, identify any encumbrances and liens, understand easements and rights of way, and analyze CC&Rs.  

• Reviewing the legal description – As you carefully inspect the paperwork of the legal description, you will want to ensure that the address in the title report matches the property address and that the boundaries listed within the title report are satisfactory and align with the parcel of land you were intending to purchase. If you are in the market for a condominium, it will be important to review information related to common areas, parking, and storage and to determine if what is said in the preliminary title aligns with what you were intending to purchase.

• Identifying encumbrances and liens – To identify encumbrances and outstanding liens on a piece of property that will not be covered in the title insurance policy, you will want to note matters such as the amount of tax owed on the property (outstanding taxes) or any hindrances related to mortgage liens or tax liens. 

• Understanding easements and rights of way – To understand how any easements and rights of way may affect a purchase, title commitment, and title insurance, it is important to pay close attention to any restrictions placed on the property. For instance, a common occurrence regarding easements and rights of way consists of past owners placing restrictions on the use of the property.

• Analyzing CC&Rs – Analyzing any CC&Rs is also a crucial step in the homebuying process. As previously stated, CC&Rs are found in HOAs and PUDs. They are a legal document that governs the members and the use of their property. CC&Rs can vary from one HOA to another or from one PUD to another, so analyzing them carefully is highly important.

For more information on the homebuying process and understanding your title report, visit the HUD website.

Common Issues Found in Preliminary Title Reports

While it is important to know how to read a preliminary title report, it is also essential to know common issues found within them:

Unpaid taxes and liens

Unpaid taxes and liens are frequent issues in title reports. If a seller has overdue property taxes, these will need to be addressed before the sale can proceed smoothly.

Easement disputes

Easement disputes are another common issue that many potential homebuyers have encountered during the escrow period. A common type of easement found on preliminary title reports has to do with utility companies and their rights to maintain fixtures.

Ownership discrepancies

Ownership discrepancies found in title preliminary reports often include challenges to the rightful ownership of specific property. These disputes are centered around the legal right of ownership and are typically resolved through court cases and are a red flag for potential homebuyers.  

Unrecorded title claims

It is also important to realize that a preliminary title report is not necessarily an exhaustive report. In other words, while a prelim title report will disclose various matters to potential homebuyers, it may not include important information such as unrecorded liens and encumbrances. 

Steps to Resolve Issues in a Preliminary Title Report

If there are any potential issues in your title preliminary report, you will want to be aware of the necessary steps to resolve any conditions of title as you pursue a clear title to close the property sale.

Getting in Touch with Your Title Representative

One thing we’ve learned over the years of doing deals in DFW and Texas is that your title officer can be your best resource during the home selling process. In one case, we found a title discrepancy that we wouldn’t have caught on our research. By working directly with the title company, we were able to resolve it quickly and keep the house sale and closing on track.

As soon as you get your preliminary title report, find the contact information of your title representative —usually at the bottom of the report—and reach out with any questions. These title professionals know how to spot issues easier and faster than you can and can help clarify complex legal descriptions, resolve encumbrances, or issues with chain of title, or the deed of trust, and ensure that there are no surprises come closing day.

Clearing Liens and Encumbrances

To resolve encumbrances and liens, work with the seller and their agent to ensure all issues are cleared before closing

Addressing Easement Issues

Easements are not generally resolved before the closing of a property. As a result, you will want to know specific information surrounding the easements and the portion of the real property they affect. To help in this endeavor, you can request plotted easements from the title company that issued the preliminary title report.

Correcting Ownership Information

If there are ownership disputes, you will want to work with your realtor or listing agent to get this resolved. However, if there is an active court case over the ownership, you should not expect to close on the purchase until the matter is resolved. The timeline in courts can be excruciatingly long.

The Role of Title Insurance

What is title insurance?

Title insurance is an insurance policy that protects the homebuyer and the financial lenders against claims to the property’s title.

Benefits of title insurance

When there is an interest or claim on the public record that was not excluded from coverage, protection is provided through payments to the one who holds the title insurance.

How to obtain title insurance

To obtain title insurance coverage, you will want to contact a title insurance company. You will also want to look for a reputable title company in Fort Worth or Dallas TX.  Our team at Bright Bid Homes, work with several reputable and local title companies in Texas that are just terrific. We recommend Republic Title in Plano and Community National Title in Dallas. Tell them that Bright Bid Homes sent you!

To gain more in-depth knowledge about title insurance policies and how they protect your investment, visit the American Land Title Association.

Ensuring a Smooth Homebuying Process: Final Steps and Key Takeaways

It should be clear that a thorough review of your preliminary title report is a crucial part of the homebuying process. Obtaining title insurance is also a necessary step as it protects homebuyers from title defects. By carefully analyzing your preliminary title report, you can pave the way for success and for a smooth property transaction.

If you have questions about title issues during your homebuying or selling process, the experts at Bright Bid Homes are here to help. We offer guidance to ensure a smooth transaction, even when title challenges come up.

*** Disclaimer. The content of this article is for informational purposes only and does not constitute legal, financial, or real estate advice. Every property transaction is unique, and you should seek professional guidance from a licensed attorney, title company, or financial advisor before making any decisions regarding title reports or property sales.