Have you been asking yourself, “What does a title company do?” during your home-buying process? Well, don’t worry; we’ve got you covered. A title company is a critical player in the bigger circle that often goes overlooked until you get the ball rolling on buying your home.
The title company is the agent of agents, where the home-buying process comes together under one roof. Your title company works for everyone involved in purchasing your home: the buyer (you), the seller, and mortgage lenders. Because of this, it’s essential to understand the unique duties and roles of the title company so you can approach your home purchase with confidence.
What Does a Title Company Do?
In many ways, the title company acts as the compliance officer for your home purchase or sale to the property owner, ensuring 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 for home buyers and home sellers. With the legal and administrative support of your title company, the home buying or selling process can be challenging.
Complete a Title Search
Typically, the first role of a title company in a home sale is to conduct a thorough search of the property’s history and a property survey. This search includes looking at all previous transfers, owners, public records, and liens to determine if the title is clean and available to transfer to a new owner.
While property title issues are not necessarily common, these are a few of the most frequent problems 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, the IRS can place a lien on the home. In the event of a sale, the lien must be paid off to clear it from the title. Other typical liens include a home equity line of credit, unpaid HOA dues, and, most obviously, a mortgage. They must pay these in full at closing for the title to get transferred to the new owner.
- Easements: An easement is a legal document that 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 gets the right to pass through a property. This often occurs with “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 report its findings. Mortgage companies will only issue a mortgage with this step in the title process. The title search and report will reveal any existing problems and claims to the title that could cause future litigation. Both the buyer and the mortgage company are protecting their respective investment by clearing the title before the home sale.
After releasing the title report, the title company will create title abstracts—essentially a summary of the report—and a title opinion letter confirming or denying the legality of the title.
Issue Title Insurance
The title insurance company’s next duty is to issue insurance protecting the buyer and the lender.
The lender’s title insurance ensures the value of the mortgage (and protects the lender) should there be any future issues with the title. One of the several types of title insurance is a purchase requirement for the home buyer. This insurance, however, does not protect your investment in the home, which is why title companies also offer owner title policies.
While optional in most states, the owner’s title insurance protects your 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.
Oversee Escrow and Closing
The final key responsibility of a title company is to oversee the closing of your home sale and manage the escrow. The escrow accounts safeguard the financial transactions 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 real estate 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.
Disburse Funds to the Appropriate Parties
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 must also send your portion of the closing funds to the title company.
Paymints.io is a secure, digital, white-label SaaS platform that allows buyers to transfer funds for many types of real estate transactions. Escrow holders and settlement agents can also disburse funds to clients or vendors using our proprietary platform. Our goal is to save you time by avoiding lines at the bank, money by lowering fees and protecting the environment by eliminating the use of paper and reducing CO2 emissions.
Finding the Right Title Company
If you’re buying a home in a new city or state, how can you determine the most trusted title companies in your region? Much like your process for finding trusted real estate agents, it is appropriate to review various title companies to gauge their responsiveness, helpfulness, and how open and transparent they are about their processes.
If you’re still struggling to determine which title company is right for you, ask for a referral from your real estate agent or attorney. These professionals work with title companies every day in every home transaction, and they have trusted, respectful companies that they will turn to repeatedly.