What Does a Title Company Do?

Many home buyers are familiar with the services provided by a real estate agent and a mortgage lender, but what does a title company do? 

The title company performs three key functions in the real estate process:

  • Determines and eliminates issues that might jeopardize your ownership rights
  • Provides insurance policies to protect the lender and the homeowner
  • Handles closing details and escrow accounts

Once you understand what the title company does, it’s simple to work with them to ensure a smooth closing.

Title Search

A title company’s most important task is to search relevant public records to verify who the current owners are and to determine if there are any issues that could impact your ownership rights.

Information specific to your property is filed with your county recorder’s office. The title agent will conduct a thorough search of public records to ensure the person who is selling you the property has the right to do so. This seems straightforward, but issues like a divorce decree or the passing of an owner can complicate who can sell the property.

A title professional also looks for fraudulent documents, questionable circumstances in previous property transfers, and forged signatures to protect your future ownership rights against issues that happened in the past.

The title agent will examine the legal description of the property, the most recent survey, current mortgages, court judgments, and other liens, such as unpaid taxes, unpaid child support, or mechanics’ liens. 

They will also include whether the property is part of a homeowners association or whether the property has designated rights-of-way or easements that could prevent you from building things like swimming pools, sheds, or a garage on certain portions of the property.

All this information is compiled in a title report that is sent to your lender who creates a list of all issues that need to be resolved before the property can be legally transferred to you.

Property Surveys

Some states require a property survey.

A surveyor will visit the property, map out the exact property lines, and verify that any structures on the property are all contained within the boundaries. The surveyor will also see if the neighboring structures are encroaching on the property.

If you don’t get a property survey prior to purchasing your home, your new neighbor could demand that you tear down your shed if it falls on their side of the property line. Property surveys are a good idea, even if one isn’t required before purchasing your home.

What Is a House Title?

First-time home buyers sitting at a counter and looking over their mortgage documents. The weird part is the fruit plate. The grapes look perfectly arranged but the oranges appear to be cut in half and placed face down, and - I mean - who leaves a waxy-coated lemon on the fruit plate to just contaminate everything else with citrus?

A house title is the bundle of legal rights you have to the home or land you purchase.

These rights include being able to make landscaping changes, make interior and exterior improvements, and even being able to sell the property when you wish. In some cases, you may have the rights to oil or minerals below the surface or access to waterways.

While a title refers to the rights you have in the property, a deed is the actual legal document used to transfer the property. The deed includes a description of the property and the parties involved in the transfer.

What is Title Insurance?

A title company provides insurance to both the lender and the homeowner.

The lender’s policy protects the value of the mortgage for the length of time the lender holds the mortgage on your property. The owner’s policy protects you for the length of time you own the home.

While homeowner’s insurance protects you against things that happen in the future, title insurance protects you from things that happened in the past. This is why you only pay one premium for title insurance at the time of the closing, instead of ongoing monthly or yearly payments.

How does title insurance protect your ownership rights?

Many issues could arise after a property changes hands that could impact ownership rights.

From property line disputes to unknown heirs showing up to claim the property, your title insurance policy means that the title company will defend you in court against these claims and reimburse you for your equity in the property in the case any claims are valid.

How much does title insurance cost?

The cost of title insurance is based on the amount of the mortgage or the value of the home.

Depending on your state, title fees are either set by the Department of Insurance or determined by the title companies themselves.

The important thing to remember is that this is a one-time fee paid at closing that protects you for the length of time you own the property.

How Do I Choose a Title Company?

If you don’t know a title agent, ask your lender or real estate agent for a recommendation.

As with anything you shop for, ask friends and family who own homes and check reviews online. Compare years of experience, inquire about services offered, and ask what they charge for each of those services.

Frequently Asked Questions

How do title companies make money?

Title companies collect fees for the work they do throughout the purchase transaction and will also collect a one-time insurance premium for providing title insurance to the buyer and the lender.

Is a title company necessary?

If you’re getting a mortgage loan, a title company is necessary for your purchase transaction. The only time a title company is not necessary is when the property is located in a jurisdiction that doesn’t require one and when the buyer is paying cash.

What services does a title company provide?

Title companies provide the title search and title insurance necessary for your home purchase. The title search looks for title defects like errors in public records, unknown liens, and forgeries. Your title insurance policy will protect you against any past title defects if they arise in the future.

So, what does a title company do? Title companies aren’t talked about often in the purchase process, but they do a lot to keep your home purchase safe and secure. Chat with your real estate team and friends and family to find a local title company you trust.

Happy homebuying.

Dan Green

Dan Green

Dan Green is a former mortgage loan officer and an industry expert. He's appeared on NPR and CNBC, and in The Wall Street Journal, Bloomberg, and dozens of local newspapers. Dan has helped millions of first-time home buyers get educated on mortgages, real estate, and personal finance. Have mortgage questions? Ask Dan in the chat.

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