Buying a home can be a very exciting time, and for most people the biggest investment in their lives. Therefore, it is very important to make sure you know everything you can about the property prior to completing the deal.
During the course of the purchase, the buyer will be presented with many sources of information about the property. One such source of information is the Preliminary Report. The Preliminary Report is a document prepared by the title company once escrow is opened, but prior to closing. It provides all kinds of information about the property that is essential for a buyer to see, such as how title is currently held and exceptions to title of record (ie. things the title company will not insure). These exceptions include easements, liens and encumbrances. Upon purchase, the Preliminary Report then becomes the final title report, on which title insurance is based.
This article is focused solely on easement issues that may arise in the Preliminary Report, and ways to ensure you are fully informed about what you are buying.
Put simply, an easement is a certain right to use the real property of another without actually owning the property. If the Preliminary Report contains exceptions for easements, it is critical that the buyer investigate these easements. If not provided by the title company, the buyer should obtain and review legible copies of all recorded easements to understand the scope and terms of any easements shown either on a survey or the Preliminary report. (NOTE – Recently, many title companies have embedded links in their Preliminary Reports that allow the buyer to directly access the relevant easement documents.)
Some specific items the buyer must look into are the location and type of the easement.
Location of Easements
Buyers should ascertain the exact physical location of easements on the property. The title company, as an accommodation, may locate easements on the property map that generally accompanies the Preliminary Report, but by doing so, the title company does not intend to assume responsibility for the accuracy of their location. Typically, the title company stamps such a map with a disclaimer stating that the map is being provided for informational purposes only. Therefore, if it is not clear where the easement is located, the buyer may want to consider having a surveyor identify the exact location of the easement, and go to the property to truly understand the potential impact of the easement.
Type of Easement
There are many different types of easements, including easements for access, utilities, and conservation or preservation easements. Depending on the type of easement identified, the buyer may want to take some additional precautions to make sure they are protected.
An access easement is exactly what it sounds like, an easement for a right of access to another property. A buyer may require an access easement over another’s property to get to their own home, or they may have an access easement over their property to allow a neighbor to access their home.
If the Preliminary Report mentions an access easement (ingress) in favor of the buyer, the buyer may ask the title insurer to affirmatively insure the easement by including it in the legal description, or by issuing an access endorsement. Generally, a buyer will want affirmative coverage for the easement, but an access endorsement may also be desirable if a particular route of access is essential to the buyer’s development plans.
As always, the buyer will want to find out as much as they can about the easement, including its exact location and how restrictive or expansive the access rights are.
Probably the most common easements are utility easements. As with access easements, these could benefit the buyer’s property or burden it.
When seeking title insurance coverage for easements for general utility purposes, the easement holder might wish to ask the title insurer to provide specific coverage against loss in the event that the burdened property owner contends that the easement can not be used for a particular utility, such as sewer lines or cable television (and is thus limited to a specific utility only).
These are just a few of issues a buyer must be aware of and consider when reviewing a Preliminary Report. Stay tuned for future articles that discuss other issues to watch out for in a Preliminary Report.
If you have any questions about a Preliminary Report, or real estate law in general, please do not hesitate to call us at (650) 327-2900, or visit us on the web at www.brewerfirm.com.