Preliminary Title Report in California: What Real Estate Agents Need to Know

Quick Answer: A preliminary title report in California is a document that a title company issues early in the escrow process. It summarizes the current condition of title on a property and lists all existing liens, easements, and encumbrances. It also identifies exceptions the title company will not insure. Real estate agents should review it within the first week of escrow to catch issues that could delay or kill the deal.

How to Read a Preliminary Title Report in California: A Complete Agent Guide

Every real estate agent in California should know how to read a preliminary title report in California. The “prelim” tells you exactly what condition the property’s title is in before closing. It reveals liens, encumbrances, easements, and exceptions that could affect your client’s ability to take clear title. Furthermore, catching problems early gives you time to resolve them without derailing the transaction. Indeed, most title issues are fully solvable when identified in the first week of escrow.

The California Land Title Association (CLTA) and the American Land Title Association (ALTA) set the standards for title insurance policies in California. The preliminary title report is not a title insurance policy itself. Instead, it is an offer by the title company to insure title under specific conditions. It describes the state of title at a specific point in time, based on a search of public records. Specifically, the title company selected for your transaction produces the prelim shortly after escrow opens. Also, the prelim always carries an effective date, so any recording after that date may not appear in it.

What Is a Preliminary Title Report in California?

A licensed title company produces the preliminary title report in California. It reflects the current public record for the subject property. California operates as a “notice recording” state, which means recorded documents establish priority and give legal notice to all parties. Therefore, anything recorded against the property will appear in the prelim. Additionally, the prelim reflects the title search at a single point in time, not continuously.

Key Fact: In California, title insurance is a regulated insurance product. The title company that issues the preliminary title report will also issue the owner’s title insurance policy after closing. In Southern California, the seller customarily pays for the owner’s policy. In Northern California, the buyer typically pays instead.

Agents often confuse the preliminary title report with the title insurance policy. However, these are two separate documents. The prelim arrives during escrow. The policy, in contrast, issues only after closing. Understanding this distinction helps you explain the process to your clients clearly and with confidence. Moreover, it prevents the common mistake of treating the prelim as final coverage.

The Two Main Sections of a California Prelim

Every preliminary title report in California organizes information into two major sections: Schedule A and Schedule B. Knowing what each section contains saves you time and helps you spot problems quickly.

Schedule A: The Basics

Schedule A is the front section of the preliminary title report. It contains the foundational information about the property and the transaction. Specifically, it includes:

• The effective date of the title search
• The legal description of the property (not just the street address)
• The current vesting (how the current owner holds title)
• The estate or interest being insured (typically fee simple)
• The proposed insured parties (the buyer and their lender)

The current vesting is one of the most important items for agents to review. It tells you exactly how the seller holds title right now. For example, a property vested in “John Smith, a married man as his sole and separate property” may require the spouse to sign escrow documents at closing. Similarly, a property vested in a trust requires trustee authority documentation. Always flag vesting issues to escrow immediately after reviewing the prelim. In fact, vesting errors are one of the most common causes of last-minute signing delays in California.

Schedule B: Exceptions and Requirements

Schedule B is the critical section. It lists everything the title company will not insure. These items are called exceptions. There are two types, and each deserves careful attention.

Part 1 (Requirements) lists the conditions that must be satisfied before the title company will issue a policy. These typically include paying off existing loans, removing recorded liens, and providing specific legal documents. Requirements must be resolved during escrow.

Part 2 (Exceptions) lists items permanently excluded from title insurance coverage. These may include easements, CC&Rs, and standard exclusions. Some exceptions are routine. Others, however, are property-specific and deserve close review. Still, not every exception signals a problem.

Common Items Agents See in a California Preliminary Title Report

The preliminary title report in California lists every recorded item affecting the property. Not all items are problems. However, agents should know which items to flag and which are routine. Specifically, the ability to distinguish the two is what separates experienced agents from those who panic unnecessarily.

Routine Items That Are Usually Fine

Most prelims contain a standard set of items that rarely cause issues. Specifically:

• Current property taxes: These appear as an exception because they operate as a lien by law. Current taxes are expected and routine.
• Deed of trust (existing mortgage): The seller’s current loan will appear in the prelim. Escrow will pay it off at closing. This is entirely standard.
• Utility easements: A power company easement along the rear of a lot is common and typically does not affect the transaction value.
• CC&Rs: Covenants, conditions, and restrictions from an HOA or developer appear in the prelim. The seller also discloses these separately, but agents should note them here as well.

Red Flags Agents Should Watch For

Some items in a preliminary title report in California require immediate attention. These are the red flags that experienced agents learn to identify quickly.

Key Fact: In our experience working with California real estate agents throughout Ventura County, Los Angeles County, and statewide, mechanic’s liens are the most common title issue that surprises agents mid-escrow. They are also fully preventable when agents review the prelim in the first week of escrow.

Mechanic’s liens arise when contractors do not receive payment for work on the property. They attach to the property even when ownership changes hands. The title company cannot insure over an unpaid mechanic’s lien without a bond or full payoff. Therefore, if you see one in the prelim, alert escrow and the seller’s agent immediately. Also, ask how old the lien is, since California imposes a 90-day deadline for contractors to perfect a mechanic’s lien.

Lis pendens is a notice of a pending lawsuit that affects the property. It clouds title and must be resolved before the title company will insure. A lis pendens often indicates a dispute between heirs, a divorce action, or a foreclosure proceeding.

Judgment liens arise when a court records a judgment against the property owner. These attach to all real property in the county where they appear. Consequently, they must be paid in full before title can transfer cleanly.

Federal or state tax liens from the IRS or California Franchise Tax Board also cloud title. These require payoff or formal release before closing can proceed. In addition, the IRS has a right of redemption for a period after certain tax lien sales, so the title company will want to review the lien details carefully.

Additional Title Clouds to Watch

Delinquent property taxes appear as a separate entry with penalty amounts. They must be brought current before the title company will insure. Additionally, lenders will always require this as a loan condition.

What Happens After the Prelim Is Reviewed?

Once you receive the preliminary title report in California, your review window opens. Most purchase agreements define a specific period for the buyer to review and approve the prelim. Missing this window can waive the buyer’s right to object to title exceptions.

Review the prelim yourself as soon as it arrives. Then share it with your buyer promptly. Specifically, point out anything unusual in Schedule B and ask escrow to explain any items you do not recognize. A skilled escrow officer will walk you through every exception. You can also learn more about what happens after you open escrow in California to understand where the prelim review fits in the overall timeline. For instance, the prelim typically arrives within the first 5 to 10 days, well before most loan contingency deadlines.

Working with Escrow to Clear Title Issues

Escrow coordinates between the buyer, seller, lender, and title company throughout the transaction. When a title issue appears in the prelim, escrow prepares a demand or gathers the required documentation to clear it. For example, if an old deed of trust from a paid-off loan was never formally reconveyed, escrow will work with the title company to issue a title indemnity or obtain a substituted document.

Escrow instructions in California give escrow the legal authority to handle these clearance steps on behalf of both parties. Agents who understand this process can set accurate expectations for their clients and avoid unnecessary panic when title issues appear.

North vs. South California: Who Pays for Title Insurance?

Regional customs in California affect how title costs are allocated. This matters because the owner’s title insurance policy, which protects the buyer, is often the largest single title and escrow cost in a transaction.

In Southern California (Los Angeles County, Ventura County, San Bernardino County, Orange County, San Diego County, and surrounding areas), the seller customarily pays for the owner’s title insurance policy. In Northern California (the Bay Area, Sacramento, and surrounding regions), the buyer typically pays for the owner’s policy. These are negotiated customs, not legal requirements. However, your clients will expect you to know the local norm and guide them accordingly. Furthermore, knowing the regional custom helps you structure offers more competitively from the start.

Also, the lender’s title insurance policy (an ALTA lender’s policy) always comes at the buyer’s expense. This holds true statewide. It protects the lender, not the buyer. Nevertheless, having a lender’s policy in place benefits the buyer indirectly, since lenders will not fund without it.

Frequently Asked Questions About the Preliminary Title Report in California

What is a preliminary title report in California?

A preliminary title report in California is a document that a title company issues during the escrow process. It summarizes the current state of title on a property, listing all recorded liens, easements, encumbrances, and exceptions. It is not a title insurance policy. Instead, it is the title company’s offer to insure title under the conditions it describes.

How long does it take to receive a preliminary title report in California?

Most title companies deliver the preliminary title report within 5 to 10 business days after escrow opens. Complex properties with longer ownership histories may take additional time. Agents should request the prelim immediately after opening escrow and review it as soon as it arrives.

What is the difference between Schedule A and Schedule B in a prelim?

Schedule A covers foundational property information: the effective date of the title search, the legal description, the current owner’s vesting, and the proposed insured parties. Schedule B lists exceptions. Part 1 covers requirements that must be met before the policy issues. Part 2 lists items permanently excluded from title coverage, such as easements and CC&Rs.

Can escrow close if there is a lis pendens on the property?

Generally, no. A lis pendens clouds title and signals an active legal dispute affecting the property. Most title companies will not insure title with an unresolved lis pendens. Therefore, the lawsuit must be dismissed, withdrawn, or resolved before escrow can close. Agents should flag this immediately and consult with the seller about the litigation status.

Does the buyer have to approve the preliminary title report in California?

Yes. Most California purchase agreements include a title contingency that gives the buyer a defined number of days to review and approve the preliminary title report in California. If the buyer objects to any exception, they may ask the seller to cure the issue. Failing to respond within the contingency period can waive the buyer’s objection rights.

What should I do if I see a mechanic’s lien in the preliminary title report?

Alert escrow and the listing agent immediately. The mechanic’s lien must be paid, bonded over, or otherwise resolved before the title company will insure. Ask escrow to open a demand with the lienholder. Depending on the amount and age of the lien, resolution may take several days to several weeks. Also, review what delays escrow in California for a full list of common title and closing issues.

Work With a California Escrow Company That Keeps Your Transactions on Track

At 805 Escrow, we are a California-licensed escrow company serving real estate agents, buyers, and sellers across the entire state of California. Our escrow officers coordinate directly with title companies to review preliminary title reports early, flag exceptions proactively, and resolve issues before they become deal-killers. Our roots are in Ventura County and the Central Coast, but we handle California escrow transactions from San Diego to the Bay Area to Sacramento and everywhere in between.

When you work with 805 Escrow, you get an escrow officer who is as invested in your closing as you are. We communicate clearly, move quickly, and make sure title issues never catch you or your client off guard. You can also learn more about how the escrow process works and what to ask an escrow company before your next deal.

Ready to open your next order? Open your escrow with 805 Escrow today.