California Partition Law Blog
Exceptions in a title report, also called a preliminary title report, make a potential buyer aware of issues with the property. Exceptions are important as they may limit what title insurance a buyer is eligible for and may prevent the sale of property altogether.
What is a title report?
A title report is used when conducting a sale or purchase of real estate to help a buyer make an informed decision. A title report is provided by a title insurance company after escrow is opened. It is a document that includes details about the property’s owners, recorded liens against the property, other encumbrances or debts, and conditions. (Ins. Code. § 12340.11.)
It also reflects recorded documents that have to do with title and other encumbrances. (Contini v. Western Title Ins. Co. (1974) 40 Cal.App.3d 536, 545–546.) This is beneficial for the buyer so they know what needs to be addressed before the sale takes place, or if they want to buy the property. (Southland Title Corp. v. Superior Court (1991) 231 Cal.App.3d 530, 536.) Because of the details the title report looks into, the report allows buyers to assess the legitimacy of ownership claims and thus if the seller has legal authority to sell the property.
The preliminary report is prepared prior to issuing a policy of title insurance. As such it shows what encumbrances or liens will not be covered under a the insurance policy. (Lee v. Fidelity Nat. Title Ins. Co. (2010) 188 Cal. App. 4th 583, 594–595.) These encumbrances or liens are called exceptions. These exceptions are issues that could encumber or interfere with the property. (Soifer v. Chicago Title Co. (2010)187 Cal. App. 4th 365, 371.) The exceptions may also act as conditions where insurance will not be given until they are eliminated or released before the transfer of title. (Ins. Code. § 12340.11.)
What are exceptions in a title report?
These exceptions implicate ownership interests like liens or disputes. Specifically, the title report will identify another person who is not the seller holding interest in the property. (Siegel v. Fidelity Nat. Title Ins. Co. (1996) 46 Cal.App.4th 1181, 1191.) A title report will also identify an easements. For example, an easement where a prior owner allowed a neighbor to cross over or use part of the property would constitute an exception. (White v. Western Title Ins. Co. (1985) 40 Cal.3d 870, 879–880.) This would limit the buyer’s use of the property presently. The buyer may not want to have these restrictions and ask that the seller clear them before purchase. The title report may specifically require this for the buyer to be insured.
The title report will differentiate between allowable exceptions and exceptions that are not permitted. Allowable exceptions include easements which are acknowledged by the buyer and seller or liens that would be paid in full once the property is sold. The title insurance policy would not cover these exceptions, but the company would still allow a policy to be issued. (Wolschlager v. Fidelity National Title Ins. Co. (2003) 111 Cal. App. 4th 784, 790.) For an impermissible title exception, it would need to be resolved prior to a policy being issued. This would include an ongoing ownership dispute, or a lien that would not be resolved once a property is sold.
What do exceptions in your title report mean?
It is important to note the exceptions raised by a title report. A preliminary title report is not a written representation of the title. (Lawrence v. Chicago Title Ins. Co. (1987) 192 Cal. App. 3d 70, 76.) This means a report may not list every single defect or encumbrance. (Hawkins v Oakland Title Ins. & Guaranty Co. (1958) 165 Cal App 2d 116, 126-127.) This report is just an offer to insure and is not a comprehensive historical report. As such, insurance companies are not liable for a negligently prepared title report issued after January 1, 1982. (Southland Title Corp. v. Superior Court (1991) 231 Cal. App. 3d 530, 538-539.)
However, there are still ways a buyer can be protected by title insurance. If the title seems to be clouded based on the preliminary report, the buyer and their agents will work with the seller and the seller’s agents to clear these exceptions before the buyer takes title.
A buyer can talk to the title insurance company for other options if the preliminary report includes a long list of exceptions. Title companies will issue binders and commitments. (Ins. Code. § 12340.11.) A binder acts as an agreement to issue insurance giving temporary coverage before a formal policy is issued. A commitment gives the title insurance company a contractual obligation to give insurance once stated requirements are met.
What are some examples of exceptions in a title report?
For example, Julie is hoping to buy a home from Shawn. They enter escrow and per norm, Julie seeks a preliminary title report from a title insurance company. This will help protect her title when she takes ownership of the home and make sure she is not held liable for any issues with the property. The preliminary title report will inform Julie of any exceptions, meaning issues with the property. If there is an easement Julie and Shawn agree to honor or there is a lien on the home which will be paid off when the home is sold Julie may not need to worry about those exceptions. However, if there is an exception like an ongoing ownership dispute between Shawn and his relatives over who owns the house this may be a bar to Julie getting title insurance and going through with the purchase of the house. With an exception like this Shawn would need to resolve the dispute before Julie would buy the house. Then the title insurance company would give her title insurance in accordance with their preliminary title report.
Conclusion
The Underwood Law Firm has a team of experienced lawyers who can help resolve your property ownership interest disputes at trial and help you pursue solutions like partition actions. We are here to help.