Definition
A Preliminary Title Report (also known simply as a “prelim”) is a document issued by a title company before a real estate transaction is finalized. It outlines the current status of the property title, including any existing claims, encumbrances, or legal issues that could impact the sale or transfer of ownership. The report is a crucial tool for both the buyer and seller as it reveals any potential legal hurdles that need to be addressed before closing.
Example
Consider a buyer interested in purchasing a particular property. The buyer’s attorney requests a preliminary title report to ensure that there are no hidden legal or title issues that could impede the sale. During this process, the title company examines public records to identify any liens, easements, or encumbrances attached to the property. In this specific case, the preliminary title report reveals a previously unpaid property tax lien, which needs to be resolved to clear the title. The cost of obtaining this report was less than $400, a small price to pay for the peace of mind and assurance that the property has a clear title before the transaction moves to closing.
Frequently Asked Questions
What is the purpose of a Preliminary Title Report?
The primary purpose of a preliminary title report is to disclose any existing encumbrances, liens, or legal issues related to the property’s title. This helps ensure that the title is clear and transferrable before closing the transaction.
Who usually requests a Preliminary Title Report?
Typically, the buyer’s attorney or real estate agent will request a preliminary title report. However, sellers may also benefit from obtaining one to address any potential issues before listing the property.
How much does a Preliminary Title Report cost?
The cost can vary depending on the title company and the complexity of the property’s title history. Generally, obtaining a preliminary title report costs between $250 to $400.
What can be found in a Preliminary Title Report?
A preliminary title report contains several key pieces of information, including:
- Owner’s Summary: The current owner of the property.
- Legal Description: A technical description of the property’s location and boundaries.
- Lien Information: Details of any outstanding mortgages, tax liens, or judgments against the property.
- Easements and Restrictions: Any rights others may have to use the property or any limitations on property use.
Is a Preliminary Title Report the same as Title Insurance?
No, a preliminary title report is not the same as title insurance. The report is a preliminary check to identify existing title issues, while title insurance provides financial protection against undiscovered title defects after the purchase is complete.
- Title Insurance: A policy that protects against losses arising from defects in the title.
- Encumbrance: A claim, lien, charge, or liability attached to a property that may affect its transferability.
- Lien: A legal right or interest that a lender has on a property, typically as a result of a debt owed by the property owner.
- Escrow: A neutral third party that holds money or property during a transaction until all terms of the agreement are met.
- Closing: The final step in a real estate transaction where the title is transferred from seller to buyer.
Online Resources
- American Land Title Association
- Title Insurance Resource Center
- HUD.gov - Home Buying
References
- American Land Title Association. (n.d.). Publications and Resources. Retrieved from https://www.alta.org/publications/
- HUD.gov. (n.d.). Home Buying. Retrieved from https://www.hud.gov/topics/home_buying
Suggested Books for Further Study
- “Title Insurance: A Comprehensive Overview” by James L. Gosdin
- “Real Estate Principles” by Charles F. Floyd & Marcus T. Allen
- “Essentials of Real Estate Investment” by David Sirota
- “Real Estate Law” by Robert a Kirsch
Real Estate Basics: Preliminary Title Report Fundamentals Quiz
### Who typically requests a Preliminary Title Report?
- [x] The buyer’s attorney or real estate agent
- [ ] The bank issuing the mortgage
- [ ] The title company alone
- [ ] The city’s planning department
> **Explanation:** Generally, the buyer's attorney or real estate agent requests a preliminary title report to ensure that the property title is clear before the transaction closes.
### What is the main purpose of a Preliminary Title Report?
- [ ] Setting the property’s market value
- [x] Identifying potential title issues before closing
- [ ] Determining future property taxes
- [ ] Preparing loan documentation
> **Explanation:** The main purpose of a preliminary title report is to identify any existing encumbrances, liens, or legal issues to ensure a clear and transferable title before closing.
### Does a Preliminary Title Report guarantee that the title is free from all defects?
- [ ] Yes, it guarantees a perfect title.
- [x] No, it only identifies current and known issues.
- [ ] Yes, as long as it is issued by a reputable title company.
- [ ] No, it guarantees all future issues are covered.
> **Explanation:** A preliminary title report only identifies current and known title issues at the time of the report. It doesn't guarantee that no future issues will arise.
### How much does obtaining a Preliminary Title Report generally cost?
- [ ] Less than $50
- [ ] Around $1000
- [x] Between $250 to $400
- [ ] More than $2000
> **Explanation:** Generally, obtaining a preliminary title report costs between $250 to $400, though prices can vary by title company and property complexity.
### What type of insurance provides financial protection against undiscovered title defects after a property purchase?
- [ ] Homeowner’s insurance
- [ ] Mortgage insurance
- [x] Title insurance
- [ ] Property liability insurance
> **Explanation:** Title insurance provides financial protection against losses arising from undiscovered title defects after the property purchase is complete.
### What information is NOT typically found in a Preliminary Title Report?
- [x] Property market value
- [ ] Legal description of the property
- [ ] Outstanding liens or mortgages
- [ ] Easements and restrictions
> **Explanation:** A preliminary title report does not typically include the property market value; it focuses on the legal status of the property title.
### Can a seller request a Preliminary Title Report?
- [x] Yes
- [ ] No
- [ ] Only in commercial transactions
- [ ] Only if repairs are needed
> **Explanation:** Sellers can also request a preliminary title report to address any potential issues before listing the property, ensuring a smoother closing process.
### What is an encumbrance in the context of a Preliminary Title Report?
- [ ] Immovable fence
- [ ] Mortgage approval
- [x] Claim, lien, or liability on the property
- [ ] Real estate contract
> **Explanation:** An encumbrance is a claim, lien, charge, or liability attached to a property which is detailed in a preliminary title report.
### Why might a buyer want a Preliminary Title Report?
- [ ] To estimate future interest rates
- [x] To ensure no hidden legal issues
- [ ] To protect against natural disasters
- [ ] To determine federal tax break eligibility
> **Explanation:** A buyer requests a preliminary title report to ensure there are no hidden legal or title issues that could affect the transaction or future ownership.
### Is a Preliminary Title Report mandatory for closing a real estate transaction?
- [ ] Yes, for all transactions
- [ ] Only for residential properties
- [x] Not mandatory but highly recommended
- [ ] Only if the property is older
> **Explanation:** A preliminary title report is not mandatory for closing but is highly recommended to disclose any existing encumbrances, liens, or legal issues.
