A preliminary title report is an essential document in a real estate transaction that helps ensure the legal ownership of the property and protects both the buyer and the lender from potential title issues. Here's how a preliminary title report works and why it's important:

1. **Initial Examination of Title**: A preliminary title report is prepared by a title company or escrow agent early in the escrow process, usually after an offer to purchase the property has been accepted. The report provides an initial examination of the property's title based on public records.

2. **Identification of Title Issues**: The preliminary title report identifies any potential title issues or defects that could affect the property's ownership rights. This may include outstanding liens, mortgages, easements, encroachments, boundary disputes, unpaid property taxes, judgments, or other legal claims against the property.

3. **Verification of Seller's Ownership**: One of the primary purposes of the preliminary title report is to verify that the seller legally owns the property and has the right to sell it. By examining the chain of title and historical records, the report confirms the seller's ownership and identifies any discrepancies or gaps in the title history.

4. **Protection for Buyer and Lender**: The preliminary title report provides protection for both the buyer and the lender by alerting them to any potential title issues that could impact the validity of the property's title. It allows them to address these issues before closing to ensure that the buyer receives clear and marketable title to the property.

5. **Opportunity for Resolution**: If the preliminary title report uncovers any title issues or defects, the parties involved can work to resolve these issues before proceeding with the transaction. This may involve obtaining releases or waivers, clearing title defects, purchasing title insurance, or negotiating with third parties to resolve disputes.

6. **Requirement for Lenders**: Lenders typically require a preliminary title report as part of the loan approval process to ensure that the property's title is clear and free from any undisclosed liens or encumbrances. The report helps lenders assess the risk associated with the property and determine whether to proceed with the loan.

7. **Peace of Mind for Buyers**: By providing assurance that the property's title is being thoroughly examined by a professional title company, the preliminary title report gives buyers peace of mind knowing that they are making a sound investment and that their ownership rights will be protected.

In summary, a preliminary title report is a critical document in a real estate transaction that helps ensure the legal ownership of the property and protects the interests of both the buyer and the lender. It provides valuable information about the property's title and allows the parties involved to address any potential issues before closing, ultimately facilitating a smooth and successful transaction.