A Guide to Title Companies for First-Time Homebuyers
If you’ve recently gone under contract to buy a home, you’ve probably been told by your real estate agent to find a title company. In that case, you may be wondering what a title company does? And what is a “title,” anyway?
In the real estate industry, “title” refers to the legal right to ownership of a property. This title is transferred from a seller to a buyer through the deed to the property. In most cases, the person who holds the deed to the property also holds title and is considered its rightful owner.
Additionally, the new owner must be able to own the property “free and clear,” which means that any other claims to ownership must be resolved before a new transfer of ownership can take place. Some common title problems might include an ex-spouse whose name is still on the deed, or financial claims like a lien or unpaid taxes on the property.
In short, a title company is responsible for making sure that the title to a property can be transferred from the seller to the buyer without issue.
“It’s the title insurance underwriter’s job to make sure the purchaser doesn’t inherit unwanted problems such as liens, claims, or unpaid taxes,” explains Kathy J. Kwak, chief operating officer of Proper Title in Chicago.
The title company offers protection against these issues through a title insurance policy.
“This policy ensures that the seller or owner has the right to sell the land and that any problems have been cleared up,” Kwak adds.
What are the responsibilities of a title company in a real estate transaction?
Here’s a rundown of the various roles and responsibilities fulfilled by a title company in a transaction.
Conduct a title search: Once a title company receives an executed agreement of sale, it performs a title search. During this search, it looks for anything that could impede the buyer’s rightful ownership of the property. Specifically, it looks for any existing mortgages, liens, judgments, unpaid taxes, and restrictions due to easements.
Order a property survey
At the same time, the title company will likely order a property survey from a third-party provider. This survey defines the boundaries of the plot of land where the home is located. It also determines whether the home fits within those boundaries or if there are any encroachments that may affect the new buyer’s ownership claim.
Put together a title report
After the title search and property survey have been completed, the title company puts together a title report, which is also known as a “title abstract.” This report spells out the results of the title search, including any issues that need to be resolved before the title for the property can be transferred to a new owner.
Issue title insurance
Once any existing issues have been resolved, the title company issues a title insurance policy. In particular, title insurance protects the recipient from financial harm in any legal issues that result from a dispute over the ownership of the property.
In addition to providing a title search and insurance, many title agents will also serve as escrow agents. In real estate, the escrow agent is a neutral third party that is in charge of holding any funds that are supposed to be exchanged between the parties in the transaction.
Typically, an escrow agent will be in charge of holding the buyer’s earnest money deposit. However, if any other funds need to be exchanged after closing, such as any negotiated funds for repairs, the escrow agent will hold those as well.
Lastly, in title states, the title agent also usually facilitates the settlement. The title agent will make sure that all the paperwork has been signed and that the funds have been properly disbursed.
What are the different types of title insurance?
When buying a home, you need to understand that there are two different types of title insurance. There is a lender’s title insurance policy and an owner’s title insurance policy. Here is a look at the differences between them.
Lender’s title insurance: Typically, buyers will be required to purchase a lender’s title insurance policy as a condition of their mortgage. As the name suggests, this policy protects the lender’s financial interest in the property if there’s ever another claim to ownership.
Owner’s title insurance: Meanwhile, an owner’s title insurance policy protects the owner if there is ever a legal dispute over who is the rightful owner.
Usually, purchasing one of these policies is optional. However, it’s generally considered to be a good idea. After all, you never know when a dispute may arise and it’s better to be safe than sorry.
Can you shop around for a title company?
When it comes to title insurance, buyers usually wonder if they can shop around for a title company. The answer to this question depends on where you live. In most cases, it does make sense to shop around for title insurance. However, in some states, shopping around does not make much of a difference.
Pennsylvania, for example, is what’s known as an “all-inclusive” title state. Title companies in the state must charge one all-inclusive fee for their services. This fee is generally uniform across the board. In other states, title companies can charge separate fees for each of their services.
If you don’t live in an all-inclusive state, shopping around helps you ensure you are getting the best rate. That said, when you solicit estimates from title companies, it’s crucial to have a clear idea of what services are included in your quote. That will help you to ensure that you’re making an apples-to-apples comparison between companies.