A preliminary title report is a title company’s snapshot of a property’s ownership, debts, and legal restrictions, along with the conditions under which it would insure the title. Learning how to read a preliminary title report means working through it in a set order: verify the basics in Schedule A, clear the conditions in Schedule B, Part I, and study Schedule B, Part II carefully, because that is where the permanent limits on your coverage live. The report is a proposal, not a promise. It says here is what we found, here is what needs fixing, and here is what we will not cover.
One term to keep straight before you start. A “title commitment” is a closely related but distinct document: a prelim carries no contractual liability, while a commitment is an actual agreement to issue insurance once you meet its conditions.1Stewart. Title Tenets Recap: Understanding Preliminary Title Reports, Commitments, and Proformas People use the words interchangeably, but if your lender asks for a commitment, they want the binding version.
Schedule A: The Four Facts to Verify First
Schedule A is the factual foundation. Check these before moving on.
Effective date. This is the date and time through which the title company has searched public records. Anything recorded after this date will not appear. If weeks pass between the effective date and closing, a last-minute lien or judgment could slip through. In practice the title company runs a final search before closing, but you should know what the report in your hand does and does not cover.2WFG National Title Insurance Company. How to Read a Preliminary Report
Legal description. This defines the exact boundaries using a lot-and-block number, metes-and-bounds language, or a government survey description. Compare it against your purchase agreement and any survey you have ordered. Mismatches here are rare but serious.
Vesting. This tells you who currently owns the property and how they hold title. The names should match whoever signed your purchase agreement. If the seller is listed as one person but the deed shows joint tenancy with a spouse, that spouse may need to sign the sale too. Vesting also describes the ownership structure, and the structure matters for transferring, inheriting, and protecting the property. Common forms include sole ownership; joint tenancy with right of survivorship, where a deceased owner’s share passes automatically to the survivors; tenancy in common, where each owner holds a separate share that passes through their estate; community property, used in roughly a dozen states for married couples and registered domestic partners; and trust ownership, where a trustee holds title for the trust’s beneficiaries. If the vesting on the report does not match how you plan to take title, raise it now. Changing vesting after closing means recording a new deed.
Proposed coverage. The dollar amount of the policy being offered, usually equal to the purchase price for an owner’s policy or the loan amount for a lender’s policy.
Schedule B, Part I: What Must Be Cleared Before the Policy Issues
Schedule B, Part I lists everything the title company needs completed before it will issue insurance. These are conditions, not suggestions. Until every item is satisfied, no policy exists.3Cypress Title. Reading and Understanding Preliminary Reports
Typical requirements include paying the agreed purchase price, properly executing and recording the new deed, paying off existing mortgages or deeds of trust and recording their releases, and satisfying outstanding tax liens or judgments against the current owner.4First Midwest Ag. ALTA Commitment for Title Insurance – Schedule B Part I You may also see requirements to record powers of attorney, provide death certificates when a joint tenant has died, or obtain corporate resolutions authorizing the sale.
Work this list with your escrow officer or attorney well before closing. Some items, like getting a lien release from a lender that was already paid off, can take weeks of back-and-forth.
Schedule B, Part II: What the Policy Will Not Cover
This is where most buyers need to slow down. Part II lists everything the title company will not cover even after you buy the policy. If a problem falls under one of these exceptions, you are on your own.
Exceptions come in two kinds. Standard (or general) exceptions apply to virtually every policy unless you take steps to remove them, and they typically include rights of parties currently occupying the property, unrecorded easements, boundary issues a survey would reveal, mechanics’ liens not yet in public records, and taxes or assessments not yet showing as recorded liens.5First Midwest Ag. ALTA Commitment for Title Insurance – Schedule B Part II Special exceptions are specific to the property: a recorded utility easement, the CC&Rs for the subdivision, an existing lien.
Some standard exceptions can be removed with extended coverage, discussed below. Special exceptions tied to recorded documents usually stay on the policy permanently, because they are real, known limitations on the property.
Reading the Common Exceptions
Easements
An easement gives someone else the right to use part of your property for a specific purpose. Utility easements let power, water, or cable companies access infrastructure running through or under the lot. You will also see access easements granting a neighbor a path across your land and drainage easements reserving space for stormwater flow. Most utility easements are harmless in practice. An easement running through a buildable area, though, can kill a renovation plan. When you see an easement on the report, request a copy of the recorded document so you can see the exact location and terms, and pair it with a survey if you have one.
CC&Rs
Covenants, conditions, and restrictions are rules recorded against the property, most often in planned communities, condominiums, and subdivisions. They can dictate architectural style, fence height, paint colors, landscaping requirements, rental restrictions, and what kind of business, if any, you can run from the home. They run with the land, meaning they bind every future owner regardless of whether you agreed to them at purchase. Violations can result in fines or legal action brought by the homeowners association or even individual neighbors. If CC&Rs appear on your report, get a full copy and read them before closing. Restrictions on short-term rentals or pet ownership are common surprises.
Liens
A lien is a financial claim against the property. Types you will commonly see:
- Mortgage liens: the existing loan. The seller’s mortgage must be paid off and a release recorded before or at closing.
- Tax liens: unpaid property taxes, income taxes, or special assessments. Tax liens generally take priority over most other claims.
- Judgment liens: placed after a court awards money to a creditor. These attach to all real property the debtor owns in the county where the judgment is recorded.
- HOA liens: filed when a homeowner falls behind on association dues or special assessments.
- Mechanics’ liens: filed by contractors, subcontractors, or suppliers who performed work on the property but were not paid. A mechanics’ lien attaches to the property itself, not the owner, so it follows the land even after a sale.6Legal Information Institute. Mechanics Lien
Every lien must be paid off, released, or negotiated before the title company will issue a clean policy. If a lien looks unfamiliar or does not seem to belong to the current owner, ask the title company to verify it. Name matches can produce false hits, especially with common names.
Encroachments
An encroachment is a structure on one property extending over the boundary onto another. A fence built two feet onto the neighbor’s side, a garage eave overhanging the property line, or a shared driveway that drifts off-center are all examples. These usually surface when a survey is compared against the legal description. Minor encroachments like eaves or hedges are often acceptable to lenders, who treat them as minor title impediments as long as they stay within certain limits.7Fannie Mae. Title Exceptions and Impediments Larger encroachments may require a boundary line agreement with the neighbor, removal of the structure, or a recorded easement. If the report flags one, get a survey.
Standard vs. Extended Coverage
Which exceptions ultimately stick to your policy depends on the coverage you buy. A standard owner’s policy covers defects discoverable through public records: forged deeds, recording errors, undisclosed heirs. It does not cover the things only a physical inspection or survey would reveal, like boundary disputes, unrecorded easements, or someone living on the property under an adverse claim.
An extended or enhanced policy, often issued under the ALTA Homeowner’s Policy form, fills many of those gaps. Compared to the standard policy, the extended version adds coverage for parties in possession not shown in public records, unrecorded easements, encroachments and boundary overlaps a survey would disclose, mechanics’ liens not yet filed, and taxes or assessments not yet recorded as liens. The enhanced policy also picks up several post-closing risks, including forgery affecting title after the policy date, someone filing an unauthorized lease against your property, and encroachment of a neighbor’s building onto your land. Some versions include an automatic increase in coverage up to 150% of the original policy amount over five years.8Stewart. ALTA Policy Comparison
To qualify for extended coverage, you will generally need a current survey and an affidavit at closing confirming there are no unrecorded liens or adverse matters you are aware of.9Land Title Guarantee Company. Protecting Your Property: Owners Extended Coverage The premium is higher, but for most residential buyers the extra protection is worth it, especially if you are planning renovations where boundary lines and easement locations matter.
Owner’s Policy vs. Lender’s Policy
If you are financing, the lender will require a lender’s title policy. That policy protects the lender’s interest and covers only the loan amount, shrinking as you pay down the mortgage. It does nothing for you. An owner’s policy is separate, optional, and protects your equity for as long as you or your heirs own the property. Whether the buyer or seller pays for it depends on local custom and what you negotiate. Either way, the cost is a one-time premium at closing. Skipping the owner’s policy to save a few hundred dollars is one of the more common penny-wise mistakes in real estate: if a title defect surfaces years later, the lender’s policy covers the bank and you hire an attorney out of pocket.
What to Do When You Spot a Problem
Most purchase contracts include a title contingency giving you a window, often five to fifteen days depending on the contract, to review the preliminary title report and raise objections. Miss that window and you may have accepted the title as-is. Do not let the report sit in your inbox.
Read Schedule B, Part II line by line. For each exception, ask whether you can live with it permanently, because most recorded exceptions stay on the policy. Request copies of any recorded documents you do not understand: the actual easement agreement, the full CC&Rs. Your agent or attorney can help translate, but reading the source documents yourself is worth the effort.
If something on the report is a dealbreaker, you generally have three options: ask the seller to resolve it before closing by paying off a lien or obtaining a release; negotiate a price reduction to account for the limitation; or exercise your title contingency and walk away. The seller’s willingness to fix problems often depends on how motivated they are and how close you are to closing.
Some defects cannot be cleared with a payoff or release. A break in the chain of title, where the historical ownership record has a gap or an unexplained transfer, may require a quiet title action, a lawsuit filed in court to establish legal ownership and eliminate competing claims. Quiet title cases can involve adverse possession disputes, missing heirs, old unreleased liens from defunct lenders, or quitclaim deeds that left ownership ambiguous. They are expensive and time-consuming, and they cause deals to fall apart. If the prelim reveals a chain-of-title issue, consult a real estate attorney before committing further.