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When preparing to purchase a home, title insurance becomes a major priority. Before issuing your title insurance, the title company will first issue you a Preliminary Report. A Preliminary Report is a means to protect the buyer from any unforeseen costs or liabilities associated with the property in question. Work on this report can begin as soon as escrow opens. The title company will seek out all documents related to the property in order to figure out what restrictions they will place on your coverage.

It is important to remember that a Preliminary Report offers no insurance coverage. It is only a report with terms and conditions for a title insurance policy. There is no contract or liability for the title company until the actual insurance policy is issued. The title insurance policy is issued to an individual and others cannot claim its benefits.

You can still protect your interests prior to issuance of your title insurance policy through “binders” and “commitments” issued by your title company. Binders give temporary coverage until the actual policy is issued; commitments are the contractual obligations of the title company to insure your property once you have met their stated requirements.

When viewing a Preliminary Report, there are some important things to look for. First among these is a listing of title defects, liens and encumbrances which will not be covered by the insurance policy issued by the title company as of the date of the issuance of the Preliminary Report. These are listed in a numbered list under the heading “Exceptions” on the Preliminary Report. Exceptions can be any number of things, from creditors who have liens for unpaid taxes or assessments, to restrictions contained in the covenants, conditions, and restrictions of the property (CC to third party limitations on property usage. This listing gives you the opportunity to discuss these issues with the title company and the seller prior to purchase, allowing you to possibly clear them from the property.

Second,
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look for information on your ownership rights. This includes your personal ownership interest in the property, in addition to any claims, restrictions, or interests of other people in the property. There will be a statement of vesting telling the degree, quantity, nature, and extent of the owner’s interest in the property. The highest type of interest, and also the most common, is “fee simple” or just plain “fee.”

Usually included is a list of standard exceptions and exclusions for the title company. Your property is not necessarily affected by any of these exceptions, but they give you important information for coverage on future usage of your property that may or may not be covered by your title insurance.

Keep in mind that the Preliminary Report only includes liens, defects,
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and encumbrances affecting the title insurance policy. The property may have other issues which will affect your title to the land that are not listing on the Report.