Throughout my career in real estate I have seen many issues that can occur during the escrow process. Of of my most challenging escrows centered around a title report that showed items that the Seller needed to remove before escrow could close. Title reports can sometimes show items that the Seller isn't even aware of...but before I go any farther lets start at the beginning.
 
At its core, title insurance is an insurance policy that protects against loss should the condition of title be other than as insured.The policy protects the Buyer from any encumbrances to the title of the property such as liens or first trust deeds in which you did not agree. In Southern California it is common for the seller to pay for Title Insurance during escrow. The policy is ordered and the title company searches the records to find any and all liens that are recorded on the land and prepares their findings in the title report. Once the report is done all items listed on the report need to be removed before the Seller sells the property. The Buyer wants to purchase the property 'free and clear' of any liens on the property. Without title insurance the Buyer could purchase the property and all the liens attached to the land, the Buyers would then be responsible to pay those liens.
 
Let's use an example, Mr. Seller owns a 5 acre parcel and wants to grade the property to build a home. He hires ABC Grading who comes out an grades a pad for his home. Mr. Seller isn't able to pay ABC Grading for the work done so ABC Grading records a Mechanics Lien for $3,000 on the property. Mr & Mrs. Buyer offer to purchase the property and within the offer specify that the Seller will pay for a title policyt. The title company prepares a title report and lists the lien from ABC Grading. In order to close escrow ABC Grading must be paid and the lien removed so that the lien isn't transferred with the land to Mr. & Mrs. Buyer.
 

Ok, so that is title insurance, but what is a prelim? A 'Prelim' is a term used to describe a preliminary title report. It shows who owns the land and any encumbrances the title company can see at first glance. It is in no way a full title report or policy and does not mean that the title company is insuring the land. As a real estate professional I would never suggest that my clients use a prelim in replacement of a title policy. It could be a huge gamble to the Buyer. Having the Seller purchase the policy protects the Buyer and the Seller.

Bob Keeran and I went out to the desert to discuss this topic specifically:

 

Land for Sale in Adelanto, CA - Kristen L. Maley (Realtor, Land Pricing Specialist at LandCore Realty). LandCore Realty provides cutting edge technology and marketing to it's clients. I specialize in helping land owners and those looking to invest in land in Adelanto, Victorville, Hesperia, Apple Valley, Helendale and surrounding areas.(760) 952-2345