The Video Transcription is Below
What Is A Preliminary Title Report?
Tyler Ford: Well, hello everyone. This is Tyler Ford with eXp Realty, Tucson, Arizona and I’m with Eric Schroeder at Fidelity. He oversees the Fidelity operation here in Tucson. There is a subject matter that I’ve been wanting to talk about, because there’s confusion. And to be honest, at times I’m a little confused. And that is what we call the title report process of a real estate transaction. So first off, one of the questions that I have for you, Eric, is there’s title commitment, prelim, preliminary title report. Are those like one in the same, or are they different things?
Eric Schroeder: They’re the same thing.
Tyler Ford: Same thing?
Eric Schroeder: Yeah. They’re exactly the same thing. Lenders typically, and real estate agents will refer to it as a prelim. We all on this side of the business know it’s the same thing. But the actual term for it is a commitment for title insurance.
Tyler Ford: Okay. So, what is a prelim? Just tell us like broad brush, what it is. And then more importantly, we’re going to go into how to read it, because that’s the real confusion is. Why is it so important?
Eric Schroeder: Absolutely. A preliminary title report, like I said, the commitment for title insurance, I mean it’s essentially a document that sounds kind of like it’s headed. It is the title insurance company’s commitment to issue title insurance policies upon the successful closing of a transaction and the satisfaction of any requirements within it. We’ll talk a little bit more about what those requirements may be. But it’s essentially an upfront look of what a title policy is going to contain before you close the deal.
How Do You Read a Title Report?
Tyler Ford: Got it. When people are looking at that, especially like agents get it, and this is where I struggle a little bit. So an agent gets it, and sometimes they may or may not know what’s on there, and they give it over to a client. And they’re expecting that the clients should know how to read that. So as an agent, and even as a client, what’s your recommendation if in terms of explaining it as an agent, and if you don’t understand it… What’s your recommendation for people that are buying or selling, what they should do with a prelim?
Eric Schroeder: So I printed one out to show kind of how many pages are in it. I mean, if you flip through here, there’s quite a bit of documentation, right?
Tyler Ford: Right.
Eric Schroeder: When I’m speaking to customers, I try to tell them that the way that I approached these is to break it down into the meat of it. Even to go further into that, there’s really four main sections of this thing that are important, right? So you know, the first page, kind of a welcome page. This is a commitment, this is what it means. This is what it does. More towards the consumer, not the real estate agent. I would just set that aside. Right?
Tyler Ford: Okay.
Eric Schroeder: The things that you need to be concerned about, especially if you’re an agent, or a buyer, is you know, Schedule A. So Schedule A is basically going to be page two. Schedule A is sort of a summary of the policies that are going to be issued at closing, who they’re going to be issued to, how much they’re going to be issued for, right? And so typically you’ll have a buyer, we’ll get an owner’s policy. And we’ll talk about what that means a little bit. And if they’re getting a loan, the lender’s going to get a lender’s policy. They have similar coverages, but the goal for the owner’s policy and the lender’s policy are a little bit different.
Eric Schroeder: And then also what’s important on here is number four. This is important. I knocked this out so this person, you wouldn’t be able to see who it is. But number four is who owns the property now. So you know, if you’re an agent, or a buyer, or a seller looking at this thing, the person that signed the contract as the seller, or the persons, or the entity, it needs to be the same person listed here in number four. Right? And that’s important. Oftentimes it’s not. And there’s a logical reason for that. Let’s say you have your property in a trust, but you signed the contract as an individual, because you didn’t remember that or what have you. Well, sometimes there’s a legitimate problem there. And that goes to the value of the title insurance, we’ll talk about that second.
Eric Schroeder: But the next thing that I would look at is the page after that’s called Exhibit A. It’s a legal description. The legal description is the way the county indexes real property in the recorded records, if you will. So, most people deal in addresses. You identify a property, 1234 Whatever Street, or you may know the tax code. But because the system had to be derived where people could index property in a way that could be searchable, pretty easy, especially the day of computers, they use legal descriptions. And so like for instance, this property was Lot 19 of Catalina Madre. Now it’s important if you’re involved in this deal and you happen to know that you’re selling Lot 19, and if you know you’re buying Lot 19, you want that to say Lot 19, right? If it doesn’t say a Lot 19, probably need to ask why. They’re could’ve been a mistake made, we could’ve looked at the wrong property. It’s happened.
Eric Schroeder: And then there’s one last section to look at that’s broken up into two parts, and that’s Schedule B. Schedule B has two sections.
Eric Schroeder: That’s where you really want to get into it. Yeah. And the first part of Scheduled B is section one. And section one often is referred to as, it’s probably hard to see on the camera, but the requirements section. Now, so the requirements… Here’s how a commitments put together. A human being actually looks at all these recorded matters. They go through a process of identifying items that need to be listed in Schedule B. Schedule B part one, the requirements, are matters that the examiner has identified that need to be addressed or rectified before we can close a transaction.
Eric Schroeder: The value there, and we’ll talk about the value of title insurance probably later. But the value there is that if you’re a buyer, items that could affect you after you bought the home that may cost claims later, are being identified before closing and, for lack of a better description, fixed before you close. And so for instance, like on this section, there’s always going to be a standard set of requirements. Number one through four or five. If you’re a borrower… Sorry a buyer, or seller, or agent, you can blow past those. They’re always the same. It says basically you have to record the proper documents to transfer title. You have to…The buyer has to pay the seller the money for the house. You have to pay the title company, the premiums, those things.
Eric Schroeder: So I would not mess with those, or worry about them. But when you start getting below that, you’ll see things like, record a release for a mortgage. It’s often referred to as a deed of trust here in Arizona. And that’s… The escrow agent then knows that the seller has a mortgage on the home, and we need to find out who it’s with, and what it’s going to take to get that mortgage company to give us a release for that deed of trust. And so then of course, we in the escrow side obtain that. We have to pay them some money at closing, and then we get a release.
Eric Schroeder: Oftentimes what you’ll see in requirements, you’ll see calls for payment of taxes. So we look to see if there’s any taxes due, homeowners association. If there’s a homeowners association, want to make sure all the dues are paid. If there’s liens, or judgments, those things will pop up. So we also research people by their names in the recording system. So, and then finally it’ll always, usually end up with… Always usually… It’ll always end up with a call for recording a deed from the current seller to the buyer. And then if the buyer’s getting a loan it’ll call for recording a deed of trust.
Eric Schroeder: So you want to make sure when you’re looking at this, if you’re a seller and you think you own the property free and clear, you don’t have a mortgage, and a mortgage shows up on the requirements, we got to figure out why. It could be that you had a mortgage, and you paid it off, and they didn’t record a release. Or sometimes what happens is people have a mortgage, and they don’t show up on here. And there could be a logical reason for that. There could be an illogical one, too. But the point is, is that if you’re looking at this, you want to make sure that the things that show up on the requirements match what you already assume about the property.
Eric Schroeder: So if you know there’s a homeowners association, and you don’t see a requirement to pay homeowners association dues, you might want to… If you notice that, you might want to bring that up to the escrow agent. Most of the time the escrow agent will know this, because the contract has an addendum that spells that out. The seller usually has let people know. But you know the idea is that look at it, make sure that everything that’s supposed to be there is, and that things that aren’t supposed to be there aren’t. And if they are or not, we got to deal with that, right?
Where To Find Easements on the Title Report?
Tyler Ford: What about easements and like right of way. So I just bought a piece of land. I knew there were some easements on there. It’s on the prelim, but at the end of the day you really don’t know what it is. How should people go about those types of things?
Eric Schroeder: That’s a great question. So those are going to be listed… That’s a great question because this segue’s into the final page, or pages, you should look at, which are Schedule B section two, exceptions. So exceptions are also sometimes referred to as exclusions. Those are things that are not going to be covered by title policy. So on that page you would find things like easements, you’d find CC&Rs. You’d find any items that really are recorded that may affect the property that a title insurance policy just can’t cover, because they’re already of record, and they may cause a claim in the future. Of course the title insurance company wouldn’t want to take on that liability.
Eric Schroeder: But to answer your question… So our company’s pretty cool. I mean, we have our commitments. This one doesn’t have that many. And if I had it up on a… I have an iPad, maybe I can show you. But you know, if you’re looking at this, it lists the document right here. A a CC&R, for instance. Let’s just say it was an easement. You hover your mouse over that, and you click it, and then brings up the document. And so in the old days, I refer to the old days, we used to send these out, and they’d have an envelope that was this thick, and it have all the documents stapled. You’d have to open it up, and what the heck is all this, right?
Title Policy and Title Insurance
Tyler Ford: It was a book. Exactly.
Eric Schroeder: Yeah. Yeah. And you know, now technology has gotten better, however you sort of hit the nail on the head in the beginning. People don’t know what they’re looking at. And the challenge is, that people are left up to looking at the documents, and trying to figure out what they mean.
Tyler Ford: Well, it’s like a different language for most, and even agents. I mean at the end of the day they… I mean there’s a lot of them that just… They don’t know even know what they’re looking at. And I’m guilty of that sometimes too, just because… Like I had one in an easement, and you really don’t know. I had to reach out to… back to the escrow officer and have them kind of dig deeper to really see what it is. But I knew it was there. But it’s hard just because you don’t know like the specifics of something a lot of times. But like you said, I like… There’s hyperlinks now that will take you right to it.
Eric Schroeder: Yeah. It certainly makes it easier. So if you’re reading through this thing, you can just click on it and bring it up. I mean, the challenge is, is that there is some onus put upon the consumer to read the 
documentation. And I’m not trying to say they have to figure it out on their own. Of course, we have resources, we can help. But a lot of times if people don’t have an understanding of what they’re looking at. At least it gives them some cause to ask some questions, or to do some additional research. But yeah, something like an easement, I mean those are important. And because they may be recorded and already exist, they typically aren’t covered by a title policy. But what ends up happening is if the title policy doesn’t include the easement, and you buy a home, or a piece of property, the next thing you know someone’s driving across your land, and it could be covered by the policy. And so then you could file a claim, and the title insurance company would have to defend it.
Tyler Ford: All right, so let’s talk about that. So you have the prelim, and you have title insurance. Like what is title insurance? And you need the prelim for the title insurance. So what does it cover? Like what do people get?
Eric Schroeder: I mean at the end of the day, there’s a few different types of policies. But let’s just… Let’s sort of narrow it down to an average home sale transaction, right?
Tyler Ford: And that’s what they’re paying for. So they’re paying for this.
Eric Schroeder: Absolutely. Yeah.
Tyler Ford: Right.
Eric Schroeder: So what they’re essentially… In a smaller short description would be is that, they’re getting a guarantee that they own the property. So they’re getting an insurance part of that recorded ownership. And then they are going to be covered for matters that would have potentially occurred in the past, that if we’re ever to become a problem for the buyer in the future, the policy may cover them against that. So if there are liens that are not taken care of at closing, taxes, someone claims that they have an ownership right in your property. The policy mainly covers the history, from the inception when the government owned the land up until you take ownership.
Tyler Ford: In the old days, that report was the whole, from from beginning to end. Right? What you would get. That’s why it’s-
Eric Schroeder: That’s right. It’s supposed to be that. And the value in that if you’re a prospective buyer, is you can take the time before your due diligence period is over, and you can look at all of those things. And if you need to get expert help in identifying what they mean, and how they may affect you, it gives you the time to do that, before you close the deal.
Eric Schroeder: And so I think that’s the real value in the commitment, is it gives you an in depth look at the recorded history. You get to look at it before you buy it. It’s sort of like doing a detailed home inspection except for you’re not looking at physical property.
Tyler Ford: Yeah. How often do… I mean every once in a while, I’m sure there’s something that slides through. How often is there a mistake on a prelim to where somebody comes back and… Does it happen?
Eric Schroeder: It does. Yeah. I mean the reality is, is that computers haven’t completely taken over industry, which I’m grateful for. There’s still skilled human beings that do this work. But unfortunately, since it’s a big integration between recorded matters, use of computers, and human skill, there is some human error that occurs from time to time.
Tyler Ford: I have to say, I mean, Fidelity’s great, because I’ve had some questions and anytime I do have a question, you guys have been extremely helpful. And really if somebody does have a question they should ask. And you guys are there. Any escrow officer, title company, Fidelity, I mean you guys are here to answer those questions, and just make sure that they understand what’s on that preliminary title report.
Eric Schroeder: Yeah, I think most people… I mean maybe I’m generalizing it. But I mean I’m guilty of this, even when I’ve bought and sold real estate. I mean I don’t even look at it.
Tyler Ford: Well, let me ask you this question too. And I’m guilty of this. I mean you get it. Is it something you file away and save? Or is it something that, I mean… What do you… If somethings… I mean you guys have a copy of it at the end of the day. But is it something that people should actually hold on to? What should people do with it?
Eric Schroeder: The title policy that you receive after you close, I definitely would recommend people retain that. The good news is, is that-
Tyler Ford: And they get that in the mail after they close, correct?
Eric Schroeder: You know, if we have email addresses on file, they can get it both, I guess.
Tyler Ford: Because a lot of times like Fidelity will email me that title report. I get a hard copy in the mail after closing.
Eric Schroeder: Yeah, so that’s what’ll happen. So during the process of, you know, processing the escrow transaction, the creation of the commitment and whatnot, those communications typically are done electronically if that’s customary to the parties involved. After closing, yeah, you’ll probably get a policy in an envelope in the mail.
Tyler Ford: Got it.
Eric Schroeder: And, like I said, the good news is we’ve retained an electronic copy. But the challenge is for properties that have been insured for many, many years, like let’s say they were insured in the ’90s or the ’80s, they didn’t have electronic records then. And you can imagine how many transactions were closed. The old way was to take all these files, and put them in storage boxes, and ship them off-
Tyler Ford: I remember microfiche. When I interned in college at Grubb & Ellis, I had to go down and search through microfiche. It was just as crazy.
Eric Schroeder: Yeah. So I guess the answer to your question is, yeah, I would probably keep the policy. If you ever have to file a claim, these days… If you file one with our company, and it’s been done in the last five, ten years, we’re probably going to have a copy of everything to identify it. But it’s always good to say, “Hey, here’s my policy. This is the proof that I’m insured.”
Tyler Ford: Got it.
Eric Schroeder: Yeah, I probably would keep that.
In Closing
Tyler Ford: Cool. Well, this has been extremely helpful. It’s a question that I’ve had, and some of my clients have had. So I just wanted to kind of do this video so we could send it out. So what I’m hearing is just there’s common sense stuff on there. Make sure names, the mortgage balance, that kind of stuff… The… Not the address… the…
Eric Schroeder: Legal description?
Tyler Ford: Legal description matches the lot. That’s the easiest way to figure it out. And if something just doesn’t look right, you should ask at the end of the day.
Eric Schroeder: Yeah. You know, and there’s a lot of property here in Pima County that has a long legal description. They call it a metes and bounds descriptions, or a surveyors calling out points and stuff. And you know, for the lay person-
Tyler Ford: Those are hard to read.
Eric Schroeder: Yeah. For the lay person, that’s going to be a little difficult. You know, so when you have those things, I mean, you can sit down and kind of match them up versus the recorded deed if you wanted to. But for the most part, if it’s a lot in block transaction, it’s good to look at. And then what I was going to say is, after Schedule B, there’s a lot of other stuff after there. There’s disclosure notices, and privacy notices, and standard exclusions. If you’re a buyer, and you want to read through that, I applaud you. If you’re an agent, I wouldn’t deal with it. It’s nothing… It’s always boilerplate. Always going to be the same. So you have Schedule A, Exhibit A, and Schedule B, and you’re done. You go through those, they look like they’re supposed to, and you move onto your next document, or challenge for the day.
Tyler Ford: Awesome. Well, this has been extremely helpful, and I appreciate it.
Eric Schroeder: Thank you.
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