What does a title company do? What is a title company?

In the early days of American history, when you wanted to buy property, you would hire an attorney who would search the county offices and provide you with a list of documents affecting the ownership of the property.

But there was no guarantee or insurance that held attorneys accountable if they were wrong.

Today’s title companies can assist the buyer by providing closing services and issuing an owner’s title insurance policy insuring the buyer against loss arising from interests that negatively affect their ownership in the property as provided by the terms of the insurance policy.

Let’s take a closer look at modern-day title companies and what services they provide lenders and buyers.

Overview: ownership

A house title, similar to a car title, represents all the legal rights, including liens, surrounding the ownership and use of a residential property. Unlike a car title, a house title isn’t a document; it’s a concept used to establish a property owner’s “bundle of rights.”

The bundle of rights encompasses all of the rights that come with being a property owner. It means you have the right to:

• Possess the property (Right of Possession)
• Use the property (Right of Control)
• Enjoy the property however you wish (Right of Enjoyment)
• Sell, rent or transfer ownership (Right of Disposition)
• Limit who can enter the property (Right of Exclusion)

What does a title company do?

A title company can act as a neutral third party as a settlement agent to close the transaction and issue a title insurance policy to the owner or lender.

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 a parent died, and they only owned half of the home. The other half of the inherited home belongs to the seller’s sibling, who turns up on your doorstep wanting their 50% of the property.

You can imagine what an unpleasant situation that would be for everyone. The insurance you buy through the title company will protect you from any liability and is an important part of the closing process.

Now that you know what a title company is, find out what it does during the home buying process.

The chain of title

The chain of title refers to the deeds and other instruments that show the sequential ownership history of a property recorded in the county records, from the patent from the U.S. government to current day.

A tittle company will search for liens attached to the property so they can be addressed at closing. Additionally, when the research of the chain of title is complete, the title company will provide a report called the title commitment. You and your lender will receive a copy to review prior to closing. The title commitment will list the current owner(s), the requirements needed to be satisfied to have the policy issued, and any matter excluded from coverage. The title commitment is not an owner’s title insurance policy – the owner’s policy will be issued after closing and then sent to you.

A title company will also make sure all property taxes are paid according to the terms of the purchase agreement.

Property survey

If required, your title company will order a property survey. The survey will disclose whether the home and other improvements are located within the legal description of the property. Based on the survey, the title company may add requirements to the title commitment to address any adverse issues shown on the survey.

Providing 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.

Unless stated otherwise in the purchase agreement, 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.

Establish how the property is vested

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.

It’s important to work with your title company to make sure that the deed is drafted the way you (the buyer) wanted. The vesting is important because it defines the rights and interests in the property between the buyers. Vesting may have tax and/or estate planning implications. If you are unsure, please contact a licensed attorney.

Manage the closing

Title companies usually manage the closing on your new property. This process is also known as settlement. One of the title company’s roles is to review all closing documents and facilitate deed preparation to have the title of your new property transferred to you. For closing, they will also arrange for a notary or attorney (depending on what your state requires) to meet with you to sign the closing paperwork.  

Organize funding

Title companies may hold and manage money in escrow. An escrow account is a bank account managed by a third party (in this case the title company) that distributes funds under the terms of the escrow agreement .

All parties involved in the process of buying a house will need to send or receive funds related to the transaction. When you need to transfer funds, the title company will help guide you to the safest and most convenient methods.

What documents do title companies need?

The title company will prepare or help you obtain the documents necessary to complete your purchase.  

Typically, buyers will need to bring a few standard documents, like proof of insurance and a valid photo ID. The title company and your real estate agent will be able to let you know if you’ll need to bring anything else with you. Sellers will need to provide some general documents and important information, like a mortgage payoff statement. The title company will also help put together a closing statement. That way, both parties know their financial responsibility to close on the home.

What types of issues can the title company uncover?

Title companies are very skilled at reviewing titles to identify issues that could affect the purchase. These issues include, but aren’t limited to:

• Liens
• Unpaid fees for work performed
• Undisclosed owners or heirs with claims to the property
• Special assessments on the property
• Outstanding loans on the home

If the title company uncovers any of the above, they’ll notify all parties.

FAQs about title companies

Title companies work to help buyers close on properties without issue. If you’re nearing closing or you’re starting to look for a title company, it’s normal to have a few questions. Here are some of the most common questions people have.

Do I have to work with a title company?

While working with a title company is required by mortgage lenders as a condition of issuing the loan, it isn’t required by law. That said, it’s always a good idea – even if you’re buying a house with cash. As mentioned above, using a title company puts the buyer at ease as it reviews all documents and provides a safe and convenient method of transferring funds to ensure proper transfer of title.   

Additionally, the title company, if requested, can issue an owner’s policy to insure your interest in the title of your newly purchased property.

What does the title company do for sellers?

Though title companies primarily benefit buyers, they help sellers by handling all paperwork, coordinating the closing process with the buyers, and providing a safe and effective way to transfer funds, including any of the seller’s liens.

Can title companies remove liens?

Title companies themselves can’t remove liens, but they can help sellers obtain payoffs from lienholders uncovered during the title research process. Ultimately, it’s up to the seller to determine the best course of action and cover any payments or settlements.

Who picks the title company?

The buyer and seller each have representation from a title company. Neither the buyer nor the seller is obligated to use a specific title company. You’re free to ask for recommendations from your real estate agent or lender if you’re not sure which company to use.

How do I choose a title company?

Some key factors to consider when selecting your title company are the safety of your funds, the level of experience the title company has, their location, and their customer service level. In addition, fast and clear communication from a title company helps everything run smoothly.

Is there a difference between a title company and an escrow company?

Yes, a title company and an escrow company serve different functions when it comes to closing on your home. That said, title companies usually offer escrow services. A title company uses title searches to verify who owns the property you are purchasing. They also will issue you your title insurance policy if requested. An escrow company holds the various funds from the buyer, seller, bank, and any other entities involved while managing the closing documents. Once closing has been completed and everything is settled for the sale, the escrow company disburses the correct amount of money to each party in the transaction.

The bottom line: title companies protect both buyers and sellers

Your title company is a neutral third party hired by you (typically through your lender) to research and insure the title of the home you’re buying. It will also manage the closing of your home.

Amrock, LLC, is a title company doing business in all 50 states. Amrock has more than 20 years of experience and offers a single point of contact, plus easy and reliable communication, extended hours, and the freedom to close on your schedule. Call (888) 848-5355 to learn how Amrock can help you complete one of the biggest financial transactions of your life.