On Real Estate & More – June 2023

After you have entered escrow, you will receive a “preliminary title report” from the title company. Most of you are probably wondering: What is this, and why do I need it? The title report is the title company’s agreement to issue a title insurance policy for the property after closing. The preliminary title report contains the same terms, conditions, and exclusions that will be in the actual insurance policy.

An owner’s title insurance policy protects you, as the new owner, in case an unknown issue affecting the property at the time the policy is issued later causes problems with your title to the property. If you are taking out a mortgage for the property, your lender will also require a lender’s policy, which protects the lender against the same sorts of issues.

The title company is willing to insure only against issues that come as later surprises. Before issuing their title commitment, the title company researches public records and excludes from their coverage known items that might possibly affect the title to the property. The title company refers to these exclusions as “exceptions.” If, during the time you own the home, you run into problems arising from one of these excluded items, you cannot turn to the title company for help.

Here is an example: A neighbor appears at your door a month after you move in and informs you that they will be using the easement they have on your property to store gravel in your backyard. If the easement was listed as an exception on your title insurance policy (easements are almost always excluded), your title insurance company is not responsible for fixing this problem: You will be dealing with it on your own.

When a title company issues insurance, it will list as exceptions and exclude from coverage certain standard items that apply to all properties. It will also make exceptions to specific items discovered during its records search that pertain only to the property being insured; and there may be several of them.

Whether standard or specific, not every exception that a title company lists in your policy is necessarily something to be concerned about. For example, the title company might list as an exception a public utility easement (such as Pacific Power’s right to have wires across your property or come check your meter). This type of easement is a common exception, and so long as the power company’s use of the easement won’t interfere with your own use of the property, it should not be something to worry about.

Some exceptions, however, could impact your ownership or use of the property or include terms unacceptable to you. For example, if you have plans for the property, such as a shed in the backyard, you’d want to know about anything that might interfere with your plans, such as that gravel storage easement mentioned above. Exceptions might also be significant because they point to expenses you’ll have to pay relating to the property, such as covenants requiring payments to a Homeowner’s Association.

For these reasons and more, it’s important to review the title report carefully, understand the exceptions, and determine whether any are unacceptable. Since your sales agreement contains a provision making the purchase of the property contingent on the buyer’s review and acceptance of the condition of the title, resolving any issues found in the title report before selling or buying the property is a valuable opportunity to save yourself title trouble later on.