What Does A Title Company Do?

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In the early days of American history, when you wanted to buy property, a conveyancer handled the transaction. Part of their job was to find out if the property title was “unencumbered.” If a property is unencumbered, it means no one other than the seller has ownership rights to it, and there are no liens on it, meaning nobody else can take the property to pay a debt. But there was no guarantee or insurance that held conveyancers accountable if they were wrong.

Today’s title companies research property titles just like conveyancers did, in what’s known as a title search. But since the late 1880s, they’ve also provided title insurance – their guarantee that if a problem turns up that they didn’t find, you’re protected.

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

Overview: House Titles

A house title is the ownership record of a property. The title shows who’s owned the property in the past, contains a physical description of the property and shows any liens on it. If you just bought the home, your mortgage will be on the title as a lien. It’s different from a deed, which is a document you get at closing that states you own the property.

What Is A Title Company And What Do They Do?

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 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 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, find out what they do during the home buying process.

Research The Chain Of Title

Title companies will research what is called the “chain of title,” or the full history of the home’s ownership. In our scenario above, a search from a title company would have revealed the second owner and stopped the sale before you closed on the mortgage.

They also look for existing liens. 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.

Perform A 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 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.

Provide 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. If someone comes forth with a claim for the property that was missed in the title search, they are protected financially and legally.

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.

Establish 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 can get more complicated. Your title company will help you understand what’s best for you and what the title should say.

Manage The 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.

Organize 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) that 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.

What Documents Do Title Companies Need?

The title company is responsible for preparing and providing both home buyers and sellers with the necessary documents needed to complete this real estate transaction. Typically, buyers will need to bring a few standard documents, like proof of insurance and their photo IDs, but 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.

Home sellers will also need to bring some general documents and important information, like a mortgage payoff statement. The title company will also help put together a closing statement so 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 finding any issues that might keep a home from legally being sold. These problems 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 issues with the property, they’ll notify both the buyer and the seller.

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 – since the title company will research the property in detail to make sure the sale can proceed.

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 negotiating any settlements or lien payouts to help the closing proceed.

Can title companies remove liens?

Title companies themselves can’t remove liens, but they can help sellers negotiate and settle with any 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 are 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.

The Bottom Line: Title Companies Protect Both Buyers And Sellers

Your title shows who’s owned the property in the past, contains a description of the property and shows if there are any liens on it. 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. Plus, they'll manage the closing of your home.

Amrock, LLC, a title company doing business in all 50 states, 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 deals of your life.