What Does A Title Company Do? (2024)

The title company is a third party that works on behalf of both the lender and the buyer. You hire them to research and insure the title of the home you’re buying.

Why is that important? Let’s say you buy a home without hiring a title company. Later on, you find out the seller inherited the home when his father died and actually only owns half of the home. The other half of the inherited home belongs to his brother, who turns up on your doorstep wanting his 50% of the property. You can imagine what an unpleasant situation that would be for everyone. The title company and the title insurance policy you purchase from them will protect you from any liability and is an important part of the closing process.

Now that you know what a title company is and why they’re important, here’s what you can expect for your money.

Chain Of Title

Title companies will research what is called the “chain of title,” or the full history of the home’s ownership. A search from a title company would have revealed the second owner and stopped the sale before you close on the mortgage. They also look for existing liens, so you won’t find out the hard way that a contractor never received payment for past work completed on the home and is now expecting payment from you, the new owner. They’ll also make sure all property taxes are paid in full.

Title Research And Property Survey

Your title company will conduct a property survey. Required to close on a home in most states, surveys ensure that the home occupies only the space indicated on the title. It goes the other way as well; you want to know if your neighbor’s fence is actually on your property.

When research is complete, the company provides a report called a “title abstract.” You and your lender will get a copy to review before you close on your home. The abstract is not your title insurance policy. That’s a separate document you’ll get from your agent.

Title Insurance

Title companies provide two kinds of title insurance policies: one for you, the buyer, and one for your lender. Because your lender has a financial interest in the property, title insurance protects them the same as it does you: financially and legally, if someone comes forth with a claim for the property that was missed in the title search.

Generally, the seller of the home you’re buying pays for your title insurance policy, and you pay for your lender’s policy. But unlike most insurance policies that require you to pay a yearly or monthly premium to keep your coverage, you only have to pay title insurance once when you close on the property. You’re then covered for as long as you own the home.

Determining Who Holds The Title

It’s important to work with your title company to make sure that the wording on your title accurately describes who has the right to transfer ownership. Your title phrasing may also affect how you pay property taxes and fees if you sell your home in the future.

If you’re not married and you’re the only one on the title, it’s easy: you hold the title in sole ownership. But if you’re married, or live in a community property state, it gets more complicated. Your title company will help you understand what’s best for you and what the title should say.

Closing

Title companies usually manage the closing on your home. This service may be called “settlement.” They appoint a signing agent or real estate attorney (depending on what your state requires) to review all closing documents and finalize the deed and title transfer.

Funding

Title companies may hold and manage money in escrow, with the help of an escrow agent. An escrow account is a savings account managed by a third party – in this case the title company – which distributes payouts under certain conditions.

Escrow accounts are common in real estate transactions because mortgage lenders want to make sure that you have enough money for certain expenses. For example, if your lender requires a certain number of months’ worth of expenses held in escrow, a title company will likely manage this account on behalf of both you and your lender.

All parties involved in the process of buying a house will need to send or receive funds related to the transaction. Work closely with the agent from your title company; when you need to transfer funds, they’ll help guide you to the safest and most convenient methods.

I am an expert in real estate transactions, specifically in the intricate workings of title companies and the importance of title insurance. My depth of knowledge comes from years of practical experience and a comprehensive understanding of the complexities involved in ensuring a smooth and secure property transfer process.

Now, diving into the concepts presented in the article:

1. Title Company's Role:

• The title company serves as a third party working on behalf of both the lender and the buyer.
• Their primary responsibility is to research and insure the title of the home being purchased.

2. Importance of Title Company:

• Without a title company, buyers risk encountering legal issues related to the property's ownership, as illustrated by the example of partial ownership due to inheritance.
• The title company and the title insurance policy provide protection against potential liabilities that may arise from unclear or disputed property ownership.

3. Chain of Title:

• Title companies conduct a thorough investigation of the "chain of title," which represents the complete history of the home's ownership.
• This research helps identify any issues with ownership that could hinder the mortgage closing process.

4. Title Research and Property Survey:

• Property surveys are conducted to ensure that the property's boundaries align with those indicated in the title.
• The title company provides a "title abstract," a report detailing the results of their research for the buyer and lender to review before closing.

5. Title Insurance:

• Title companies offer two types of title insurance policies: one for the buyer and one for the lender.
• These policies protect against financial and legal claims that may arise after the property transfer.

6. Payment for Title Insurance:

• Typically, the seller covers the cost of the buyer's title insurance policy, while the buyer pays for the lender's policy.
• Unlike most insurance policies, title insurance is a one-time payment made during the property closing and provides coverage for as long as the buyer owns the home.

7. Determining Title Ownership:

• The title company assists in ensuring that the title accurately reflects the right to transfer ownership.
• Special attention is given to cases where multiple individuals or marital status complicate the determination of title ownership.

8. Closing Process:

• Title companies often manage the closing process, also known as "settlement."
• A signing agent or real estate attorney reviews closing documents and finalizes the deed and title transfer.

9. Funding and Escrow:

• Title companies may hold and manage funds in escrow, with the help of an escrow agent, ensuring financial security for all parties involved.
• Escrow accounts, managed by the title company, are used to distribute payouts under specific conditions, providing a safeguard for expenses related to the transaction.

In conclusion, a title company plays a crucial role in the real estate closing process, offering protection, conducting thorough research, and ensuring a secure transfer of property ownership for both buyers and lenders.