As an Arizona real estate lawyer I have met with hundreds of people who have questions about real estate transactions they are involved in or considering getting involved in. Many of these questions surround the myriad of documents that are typically associated with the purchase of real estate. One of these documents is the Preliminary Title Report.
Most people who purchase real estate will review dozens of documents that they are expected to understand before closing the deal. The Preliminary Title Report is prepared by the title company selected by the parties and/or the lender who will be financing the purchase, and it constitutes an offer on the part of the title insurance company issue a title insurance policy covering the real estate at issue, subject to the exceptions stated in the report.
The exceptions really are the primary points of interest for the buyer who is evaluating a property, and buyers should reserve the right to cancel the transaction pending the opportunity to review and approve the title report and the stated exceptions. These exceptions may indicate potential problems with the property, so it is vitally important for the report to be carefully reviewed and understood as soon as it is received. The exceptions identified in a Preliminary Title Report are the same items that will be shown as exceptions to coverage in the title insurance policy upon closing, subject of course to changes that may occur before the time of closing (hence the designation as “preliminary”).
The report is issued in response to an application for title insurance,typically for the purpose of facilitating due diligence requirements and confirming the availability of a policy in a form and content approved by the parties to the transaction. In some instances a party may wish to understand what defects or problems exist associated with title to a certain property, but not necessarily in connection with a contemplated sale or purchase. If that is the case, instead of requesting a Preliminary Title Report, the party should consider a Condition of Title Report, which will identify the same items that would be listed as exceptions, and which is generally less costly.
Significantly, the Preliminary Title Report disclaims liability and typically states that it is being provided solely to facilitate the subsequent issuance of a title insurance policy. Prior to that issuance, the title insurer purports to assume no liability for errors in the report. In other words, any claim asserting a defect in title must be made under the title policy and not the Preliminary Title Report. The Preliminary Title Report includes a number of items, including the exceptions referenced above. These items include:
The legal interest interest in the property that is to be covered.
The legal owner of the estate or interest who is to be insured under the policy if and when it is issued.
The legal description of the parcel of land involved.
The exceptions, including liens, judgments, claims, encumbrances and other risks or potential risks, which will not be insured against if a title policy is issued.