8th Nov 2024
Admin
It takes more than just exchanging money and signing papers to buy or sell a house. Also, property rights must be passed from the seller to the buyer. A title company helps you with that.
In legal terms, "title" refers to all the benefits, uses, and rights that come with property ownership. So, what is the role of a title company? To facilitate the sale of a property, settlement services are provided along with a title search.
Title insurance is a essential aspect of property transactions, as it protects both the new owner of the house and the mortgage lender. Here's what you need to know about it.
What is a Title Company?
A title company acts as a third party, working for both the buyer and the lender. They check the home’s title and provide insurance to protect your purchase. They help ensure there are no ownership disputes by assuring that the seller has the legal right to sell the property.
The title company can also offer title insurance, which safeguards both the buyer and the lender from future claims or issues related to the property's past ownership.
Why does this matter? Imagine you buy a home without using a title company, only to later discover that the seller inherited the property and only owns half of it. The other half belongs to their sibling, who then shows up claiming their share of the home.
This could create a very messy and stressful situation. A title company and the title insurance you get protect you from these kinds of issues, ensuring you're covered and guaranteeing a smooth closing process.
What Does a Title Company Do?
Review the Chain of Title
Title companies investigate the property’s ownership history, known as the "chain of title." In the earlier scenario, they would have spotted the second owner and prevented the sale from proceeding. They also check for unpaid debts like contractor liens so you don’t end up paying for past work. Plus, they make sure property taxes are fully paid.
Conduct a Property Survey
A property survey, typically required before closing, ensures that the house sits on the land as described in the title. It also checks if any part of your neighbor’s property, like a fence, encroaches on yours. Once the title research is done, they’ll provide a report (called a title abstract), which you and your lender will review before closing. Note this report is separate from your title insurance.
Offer Title Insurance
Title companies provide insurance for both the buyer and the lender, protecting against any overlooked ownership claims. For example, if a missed claim during the search pops up later, title insurance will cover the legal and financial costs. Typically, the seller covers your title insurance policy while you pay for your lender’s. Unlike other insurance policies, title insurance only requires a one-time payment at closing and covers you for as long as you own the home.
Clarify Who Holds the Title
Your title company helps ensure the title correctly reflects who has ownership rights. This wording can affect how property taxes and fees are handled, especially when selling. If you're the sole owner, it’s straightforward. But if you're married or live in a community property state, it can get more complex, and your title company will guide you through the best way to structure it.
Manage the Closing Process
Title companies often handle the closing, referred to as "settlement." They arrange for a signing agent or real estate attorney (depending on your state’s requirements) to review the final documents and officially transfer the title and deed.
Oversee Funding and Escrow
Title companies often hold funds in escrow, managed by an escrow agent. This ensures that payments for property taxes and other expenses are available when needed. If your lender requires a set amount in reserve, the title company manages this account for both you and the lender. They’ll also help facilitate fund transfers during the purchase process, guiding you through secure and efficient options.
What Kind of Problems Can a Title Company Uncover?
Title companies are great at spotting issues that could block the sale of a home. Some of these issues might include:
- Liens on the property
- Unpaid bills for work done on the home
- Hidden owners or heirs with a claim to the property
- Special assessments tied to the property
- Unpaid loans on the home
If any problems arise, the title company will inform the buyer and seller.
What is Title Insurance?
One of the key services a title company provides is title insurance. This type of insurance is unique because it protects you against any problems related to the property's title, dating back to when it was first owned up to today. You pay a one-time fee for this coverage, which lasts for as long as you own the property.
There are two main types of title insurance policies:
Lender’s Policy:
This policy protects the lender in case there are any title issues that could impact the mortgage loan. The amount of coverage is based on the mortgage amount, which decreases as you pay off your loan. Most mortgage lenders require this type of insurance.
Owner’s Policy:
While this policy isn't always mandatory, it’s highly recommended for homeowners. It protects you from future claims against the property, even if the lender has their policy. This coverage lasts as long as you or your heirs are interested in the property.
If any title issues arise, it’s crucial to address them immediately. Problems with the title can cause delays in closing, or in the worst-case scenario, they could jeopardize the entire sale. If your title company uncovers any issues, consult a real estate attorney to resolve them as soon as possible.
How to Choose a Title Company?
Title companies are usually recommended by your real estate agent, lender, or attorney during a home sale, but you’re not stuck with their suggestions. While big names like First American and Fidelity National are popular nationwide, there are plenty of local and state title companies to consider.
It’s a good idea to ask for multiple recommendations and research each company. Look into their rates, fees, and online reviews to understand their reputation.
When choosing a title company, ensure they’re licensed in your state. Be ready to ask important questions, such as:
- How long have you been in business?
- Who is your underwriter?
- How much liability insurance do you carry?
- What’s your ratio of title claims to customers?
- Have you had any claims?
- How do you prevent escrow fraud?
- What challenges have you faced during title searches, and how did you handle them?
- How long will the title search take, and who will conduct it?
- How much title insurance coverage do I need, and why?
Selecting a title company based on their answers to these questions, customer service, and familiarity with other professionals in the transaction will help ensure a smooth process.
Final Thoughts
Like many other parts of home buying, a local real estate agent can help you find a title company. You can ask your agent for suggestions or their experiences with different companies, whether large national firms or smaller local ones.
Plus, once the title company finishes its search, your agent can help you understand what they found.
