There is a key player in the home buying process that often goes overlooked, that is, until you start the process of buying your own home. The title company is the agent of agents, the place in which the home buying process comes together under one roof. Your title company works for everyone involved in the purchase of your home: the buyer (you), the seller, and the mortgage lender. It is important to understand the unique duties and roles of the title company so you can approach your home purchase with confidence.
In many ways, the title company acts as the compliance officer for your home purchase or sale. They work to ensure that every aspect of the transaction is legal and that the transfer of ownership is free of error. Title companies provide an essential service in the sale or refinance of any home. Without the legal and administrative support your title company, the home buying and selling process would be filled with challenges.
Typically the first role of a title company in a home sale is to conduct a thorough search of the properties history. This includes looking at all previous transfers, owners, and liens to determine if the title is clean and available to transfer to a new owner. While title issues are not necessarily common, these are a few of the most frequent issues that show up in a title search.
- Leases: Is the property currently being leased to a third party? If so, the title search will reveal this information, even if the seller or seller’s agent failed to do so.
- Unpaid Taxes or Liens: If a homeowner falls behind on taxes, it is possible for the IRS to place a lien on the home. In the event of a sale, the lien must be paid off in order to clear it from the title. Other common liens include a home equity line of credit, unpaid HOA dues, and, most obviously, a mortgage. These must all be paid in full at closing in order for the title to be transferred to the new owner.
- Easements: An easement offers someone else the right to use or enter your property for a specific purpose. It is a non-possessory right, meaning that a person has no ownership or possession of the property, only the right to access it. The most common type of easement is a right of way easement, in which a neighbor is given the right to pass through a property. This is seen in the case of shared driveways, where one neighbor owns the land on which the driveway exists, but the other is given the right to pass “through” to their property.
Once the title search is complete, the title company will issue a report with its findings. Mortgage companies will not issue a mortgage without this step in the title process. The title search and report reveals any existing problems and claims to the title that could cause future litigation. By clearing the title before the home sale, both the buyer and the mortgage company are protecting their investment.
After releasing the title report, the title company will create an abstract of title—essentially a summary of the report—as well as a title opinion letter, confirming or denying the legality of the title.
The next duty of the title company is to issue insurance protecting both the buyer and the lender. Lender’s title insurance is required and is paid for by the home buyer in order to insure the value of the mortgage should there be any future issues with the title. This insurance, however, does not protect your investment in the home, which is why title companies also offer owner title policies. The owner’s title insurance, while optional in most states, protects your own equity in the home if you ever face an unexpected issue with your title. Both types of insurance are there to protect your investment in the face of litigation or title fraud.
The final, key responsibility of a title company is to oversee the closing of your home sale and manage the escrow. The escrow account safeguards the financial transactions that are required to complete the sale or purchase of your home, including earnest money, down payment, and closing costs and fees.
The title company also manages and protects the documentation required for the closing, which includes the deed, title, and legal paperwork. When you are ready to close on your home, all parties typically meet at the title company to sign the documents—under the company’s guidance—complete final transactions, disburse funds, and transfer the title. In some states, this step is managed by a real estate attorney or escrow agent, however, many states still use the title company as administrator for all closing procedures.
The closing of your home involves disbursing the closing funds. The lender will wire the loan amount proceeds to the title company. As the buyer, you will also need to send your portion of the closing funds to the title company. Acceptable forms of payment are cashiers check, wire or LemonBrew’s proprietary electronic transfer platform. Once all funds have been disbursed to the appropriates parties, namely the seller, the transaction is deemed closed and settled.
If you are buying a home in a new city or state, how can you determine which title companies are most trusted in your region? Much like your process for finding a trusted real estate agent, it is appropriate to review various title companies in order to gauge their responsiveness, helpfulness, and how open and transparent they are about their processes. If you are still struggling to determine which title company is right for you, ask for a referral from your real estate agent or real estate attorney. These professionals work with title companies every day in every home transaction, and they have trusted, respectful companies that they will turn to again and again. Your local LemonBrew real estate agent will be able to offer suggestions about which title companies may be a great fit for you.
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