If you’ve bought or sold a house in the past, you’ve likely heard of a title company. But with all the moving pieces involved in real estate transactions, it can be hard to know the exact responsibility of every party. A good title company is an essential resource for home buyers, ensuring that the sellers have a legitimate claim on the title and the legal right to sell it. Title companies also provide insurance for the buyer and the lender, protecting them in case there are any undiscovered issues with the title.
What Is a Title Search?
The first function of a title company is to perform a title search. A title search is an extensive investigation into the validity of a title claim. The title company will carefully review property records to ensure the person or company claiming ownership is indeed the legal owner and that no one else has partial ownership of the property. In addition to confirming property claims, the title company will also look for any records that could affect ownership of the property. They will search for mortgages, liens, unpaid taxes, leases and other legal issues. The title company will then compile all that they have found into a summary, and issue their formal opinion on the authenticity of the title.
What Is Title Insurance?
Title insurance is issued by the title company after it has issued its title opinion. There are two main types of title insurance, owner’s insurance and lender’s insurance. Owner’s title insurance protects the buyer from any undiscovered ownership claims. Should someone claim ownership of the property, and their claim is found to be authentic, owner’s insurance will protect you from any legal fees and cover any equity you have in the property. Lender’s insurance, as you may have guessed, protects lenders in a similar manner, covering the amount lent for the property’s purchase. In many cases, the home buyer is required by the lender to purchase lender’s insurance. But having owner’s insurance (whether the buyer or seller purchases is varies by region) is also a pretty smart idea.
What Is Escrow?
In many areas, title companies also maintain escrow accounts. During a real estate transaction, money and/or paperwork is placed into an escrow account that is managed by a third party like a title company. During closing, the escrow agent conducts the title transfer and releases the accounts according to the specific instructions of each party.
How to Choose a Title Company?
Choosing a good title company can greatly affect a real estate deal. You’re looking for a company that is established and trustworthy, as there are many key parts of a transaction hanging on their work. Talk to your real estate agent or lender, as well as friends and family, but also do some of your own research into their reliability.
As you can see, a title company plays an important role in every real estate transaction. If you’re looking to purchase your dream home, waiting on a title company’s work may seem just another hurdle, but they’re a valuable safe guard in the real estate market.