How to Read a Preliminary Title Report When Buying a Home

When you are buying a home, one of the most important documents you will receive during escrow is the preliminary title report, often called the prelim.

At first glance, it can feel a little overwhelming. There are legal descriptions, exceptions, taxes, easements, trust language, liens, and pages of title insurance wording. But the purpose of the prelim is actually pretty simple: it gives the buyer, escrow, lender, and title company a snapshot of what is currently showing on title before the property transfers to the new owner.

Think of it as a background check on the property.

The prelim helps confirm who owns the property, how title is currently held, what liens or loans may be recorded against it, what property taxes are owed or paid, and what items may remain attached to the property after closing, such as easements, CC&Rs, or HOA restrictions.

A preliminary report is not the final title insurance policy. It is the title company’s initial report showing what it is prepared to insure, subject to the listed exceptions and requirements. The report itself usually states that it is prepared for the purpose of issuing a title insurance policy and that buyers should carefully review the exceptions and exclusions.

What Is Title Insurance?

Title insurance protects the buyer and lender against certain title-related issues that may affect ownership of the property.

In simple terms, it helps protect against problems such as:

• Someone claiming they have an ownership interest in the property

• A recorded lien that was missed or not properly cleared

• Errors in public records

• Issues with how a prior deed was recorded

• Certain unpaid obligations tied to the property

• Problems with the legal ownership chain

There are typically two types of title insurance policies in a purchase:

Owner’s title policy
This protects the buyer’s ownership interest in the property.

Lender’s title policy
This protects the lender’s interest if the buyer is getting a loan.

The prelim will usually show the type of title policy expected to be issued. For example, a prelim may reference an ALTA Homeowner’s Policy and an ALTA Loan Policy.

What Does “Free and Clear” Mean?

A common concern buyers have is whether the property will be transferred to them with the seller’s liens, loans, or unpaid taxes still attached.

In a normal sale, the property is intended to be sold free and clear of the seller’s monetary liens. That means any existing mortgage, deed of trust, judgment lien, or unpaid property tax obligation that must be cleared for the sale is typically handled through escrow before or at closing.

For example, if the seller has an existing loan recorded against the property, escrow will request a payoff demand, and that loan is paid off from the seller’s proceeds at close of escrow. Once paid, the lender records a release or reconveyance showing that the old loan has been cleared.

The same general concept applies to property taxes. If property taxes are due, outstanding, or prorated between buyer and seller, escrow handles those amounts through the closing statement. The seller is responsible for their portion up to the close of escrow, and the buyer is responsible for their portion after closing.

So when buyers see an existing loan, tax line, or other item in the prelim, it does not automatically mean they are inheriting that debt. It usually means title and escrow have identified the item and will make sure it is addressed before the buyer receives title.

How to Read a Preliminary Title Report, Step by Step

Step 1: Confirm the Property Information

Start with the basic property details.

Look for:

• Property address

• APN, also called the Assessor’s Parcel Number

• County

• City

• Legal description

The legal description is not always the same as the mailing address. It is the formal description of the land used in public records. In the sample prelim, the report includes both the property address and a separate legal description in Exhibit A.

This section confirms that the title company is reviewing the correct property.

Step 2: Look at the Effective Date

The prelim will have an effective date, which tells you when the title company last searched the public records.

This matters because title is only being reported as of that date and time. Anything recorded after that date may not appear until the report is updated.

For buyers, the effective date is helpful because it shows how current the title search is. Escrow and title will continue updating the file before closing.

Step 3: Check How Title Is Currently Held

Next, look for the section that says something like:

“Title to said estate or interest is vested in...”

This tells you who currently owns the property according to title records.

Title may be held by:

• An individual

• A married couple

• A trust

• An LLC

• A corporation

• Multiple owners

If the property is held in a trust, the title company may require a trust certification or additional documentation to confirm the trustee has authority to sell. That does not mean something is wrong. It is a normal title requirement when a trust owns the property.

In the sample prelim, the vesting section identifies the current owner and notes that title is subject to an additional trust-related item later in the report.

Step 4: Review the Type of Ownership

The prelim may say the property interest is held in fee simple.

Fee simple is the most common and complete form of ownership for residential real estate. It generally means the owner owns the property outright, subject to items like taxes, easements, zoning laws, HOA rules, recorded restrictions, and any loans or liens that must be cleared.

For most buyers, seeing “fee simple” is normal and expected.

Step 5: Read Schedule B Carefully

Schedule B is one of the most important sections of the prelim.

This is where the title company lists exceptions to coverage and items affecting the property.

These may include:

• Property taxes

• Supplemental taxes

• Easements

• CC&Rs

• HOA restrictions

• Recorded agreements

• Existing deeds of trust or mortgages

• Trust requirements

• Statement of Information requirements

• HOA transfer requirements

• Other recorded matters

Not every exception is bad. Some are completely normal.

For example, property taxes, easements, and CC&Rs are common. If the home is in an HOA community, the prelim will usually reference recorded covenants, conditions, and restrictions. These are part of the property and typically remain in place after closing.

Step 6: Understand Property Taxes

The prelim will usually show current property tax information, including whether installments are paid or unpaid.

This helps escrow confirm what taxes are owed, what has already been paid, and how taxes should be prorated at closing.

If property taxes are outstanding, they are typically paid through escrow at close. If taxes have already been paid by the seller for a period that extends beyond closing, the buyer may reimburse the seller for the buyer’s portion through prorations.

The key point for buyers: property taxes are accounted for at closing, and the seller’s unpaid tax obligations are typically cleared through escrow before the property transfers.

The sample prelim shows property tax details, including tax identification number, fiscal year, installment amounts, and whether installments were paid.

Step 7: Understand Supplemental Taxes

In California, buyers should also understand supplemental property taxes.

When a property changes ownership, the county may reassess the property based on the new purchase price. If the new assessed value is higher than the prior assessed value, the buyer may receive a supplemental tax bill after closing.

This is normal in California.

Supplemental taxes are different from regular annual property taxes. They are not necessarily a sign that something was unpaid by the seller. They are often created because of the change in ownership and reassessment after the sale.

The prelim may list “the lien of supplemental taxes, if any,” because the title company is alerting the buyer that supplemental taxes may be assessed later.

Step 8: Review Easements, Restrictions, and CC&Rs

Many prelims include exceptions for easements, restrictions, setbacks, and CC&Rs.

These can affect how the property is used.

Examples may include:

• Utility easements

• Drainage easements

• Access rights

• Setback lines

• HOA rules

• Architectural restrictions

• Maintenance obligations

• Community rules

These are not necessarily issues. They are often standard items in residential communities, especially planned developments or HOA neighborhoods.

However, buyers should review these items so they understand what continues after closing. Unlike the seller’s mortgage or unpaid taxes, easements and CC&Rs usually do not get “paid off.” They remain attached to the property.

Step 9: Identify Existing Loans or Deeds of Trust

If the seller has a mortgage, the prelim may show a deed of trust recorded against the property.

This is normal.

A deed of trust is the recorded security instrument for a loan. In plain English, it means the seller’s lender has a recorded interest in the property until the loan is paid off.

At closing, escrow typically uses the seller’s proceeds to pay off the existing loan. After payoff, the lien is released.

So if a buyer sees a deed of trust in the prelim, it does not mean the buyer is taking over the seller’s loan unless that has been specifically agreed to in the contract. In a standard sale, that loan is paid off and removed as part of closing.

Step 10: Look for Title Requirements

Some items in the prelim are not permanent property issues. They are simply things the title company needs before it will issue the final title policy.

Examples may include:

• Trust certification

• Statement of Information

• Owner’s affidavit

• HOA transfer documents

• Payoff demands

• Clarification of similar names

• Additional documentation from the seller

A Statement of Information is common. Title companies use it to distinguish the actual seller or buyer from other people with similar names who may have liens, judgments, or public record items. It helps avoid incorrectly attaching someone else’s issue to the transaction.

The sample prelim includes Statement of Information requirements, explaining that title searches include matters indexed by name and that the completed statement helps eliminate items involving people with the same or similar names.

Step 11: Check HOA Requirements

If the home is in an HOA, the prelim may mention that no transfer of title can occur until HOA transfer requirements are satisfied and unpaid assessments or transfer fees are paid.

This is also common.

Escrow will typically work with the HOA or HOA document provider to confirm dues, transfer fees, and any outstanding balances. If the seller owes unpaid HOA dues, those are generally collected through escrow at closing.

Buyers should still review the HOA documents separately, including:

• CC&Rs

• Bylaws

• Rules and regulations

• Budget

• Reserve study

• Meeting minutes

• Insurance documents

• Any pending special assessments

The prelim tells you there is an HOA-related title requirement, but the HOA document package gives you the bigger picture of the community.

Step 12: Understand the Exceptions and Exclusions

The back pages of a prelim often include standard title insurance exclusions and limitations. This language can look dense, but the basic idea is that title insurance does not cover everything.

Title insurance generally focuses on covered title issues, not every possible property issue.

It usually does not replace:

• Home inspections

• Survey review

• Zoning research

• Permit research

• HOA document review

• Physical inspection of the land

• Insurance review

• Legal or tax advice

For example, title insurance may not cover certain matters that are not shown in public records or items that could be discovered through a physical inspection or survey. The sample prelim includes standard policy exclusions and exceptions explaining what may not be covered.

What Buyers Should Focus On

When reviewing a prelim, buyers should focus on these main questions:

1. Is the property information correct?
   Confirm the address, APN, and legal description.

2. Who owns the property?
   Make sure the seller shown on title matches the transaction.

3. Are there loans or liens that need to be paid off?
   Escrow and title will typically handle these at closing.

4. Are property taxes paid or outstanding?
   Escrow will prorate or collect taxes as needed.

5. Are there CC&Rs, easements, or HOA restrictions?
   These usually stay with the property after closing.

6. Are there title requirements that must be satisfied before closing?
   These are often normal paperwork items.

7. Is anything unusual or unclear?
   Ask the title rep, escrow officer, lender, or your real estate agent for clarification.

The Big Picture

A preliminary title report is not meant to scare buyers. It is meant to create transparency.

Most prelims contain a mix of normal items, including property taxes, existing loans, HOA documents, easements, and title company requirements. The important thing is understanding which items will be cleared at closing and which items remain attached to the property.

In a standard sale, the seller’s existing mortgage, unpaid liens, and outstanding property taxes that must be cleared are typically paid through escrow before or at close of escrow. The buyer should receive title subject only to the accepted exceptions, such as recorded easements, CC&Rs, taxes not yet due, and other standard matters disclosed in the prelim.

The prelim is essentially a roadmap. It shows what title has found, what needs to be resolved, and what the title insurance policy will and will not cover.

Questions?

If you have any questions about the preliminary title report, title insurance, liens, taxes, or any listed exceptions, please contact the title representative directly. They can walk you through the report and explain what applies to your specific transaction.