If you’re in the market to buy a home or invest in real estate, you’ll likely need to work with a title company. Besides protecting you from a claim from a previous owner, a title company ensures you enjoy the rights to the acquired property through its title search, title insurance, and settlement services.
But what does a title company do? In this post, we’ll explain what a title company does and why you may want to consider working with them. We’ll also highlight some key benefits of using a title company when buying a property. Read on to learn more!
What’s a Title Company?
A title company helps to protect both parties involved in a real estate transaction from any conflicts. Its verifying process ensures that the seller has all rights and legal documentation for selling their house successfully- including proving they own it!
Title insurance protects homeowners as well as lenders from title claims and similar conflicts that can come up from previous owners of the home.
The three primary functions of a title company are:
1. Title Search
The primary function of a title company is to search public records to discover the property’s current owners and if there will be issues impacting your ownership rights.
Your title agent must conduct thorough public record research at the county recorder’s office to ensure the seller has the right to sell the property. This research is necessary considering that events like the homeowner’s death or divorce decree can complicate the property sale.
The title agent will also look for forged signatures, unclear terms in previous property transfers, and fraudulent documents to safeguard your ownership rights against any issue that might have occurred.
Also, the title professional will examine court judgments, current mortgages, recent surveys, the property’s legal description, and other liens, including mechanics’ liens, unpaid child support, and unpaid taxes.
Lastly, the agent will discover whether the home has easements or designated rights-of-way that can prevent you from adding features like a garage, sheds, or swimming pools on some parts of the property. They’ll also specify if the house belongs to a homeowners association.
The title agent will compile the home title report and send them to your mortgage lender to recognize the issues that should be resolved before the house can legally become yours.
2. Property Surveys
Although a property survey isn’t compulsory in all states, you’ll have to go for it if your location demands it. Here, a surveyor will map out the lines in the house and confirm that all the structures are within the property boundaries.
At this point, the surveyor will also check that the neighboring structures aren’t infringing on the house. Your new neighbor could ask you to remove a constructed piece if it mistakenly falls on their property line if you didn’t opt for a property survey before buying a property.
Therefore, whether your state requires it or not, it’s always best to get a property survey while buying a home, according to your real estate title company recommendation.
3. Title Insurance
Another crucial function of title companies is providing title insurance for both the lender and property owner. Title companies offer two types of title insurance: owner’s title insurance and mortgage title insurance.
The mortgage lender’s policy protects the mortgage value throughout the period the lender will hold your property mortgage. On the other hand, the owner’s title insurance policy covers you throughout the period you own the property.
Another way to look at it is this – title insurance protects you from past incidents, while the owner’s title insurance will protect you against future occurrences. Hence, you only get to pay one title insurance premium while closing the property rather than a yearly or monthly payment.
What a Title Company Does Before Issuing Title Insurance
Before a title company issues title insurance, it must first discover if the house has encumbrances or title defects by doing a title search on the home.
The following are steps a title company goes through before issuing title insurance:
Research Public Record Errors, Encumbrances, and Liens
Errors sometimes happen with public records. For example, a complete mortgage repayment might be unrecorded, leading to a lien on the home.
A title company will research and obtain vital information from previous mortgage company and owners to ensure there isn’t any lien on the property. Also, it’ll verify that there aren’t any enforceable forgeries and illegal deeds regarding the home.
Verify Easement of Property, Legal Description, and Boundaries
You wouldn’t want to have issues with an unfriendly neighbor over your property lines. Therefore, the title company verifies your home easements and dimensions.
Investigate Missing Heirs, Illegal Deeds, Impersonations, and Forgeries
Suppose someone had an illegal or forged deed to your new home, or there’s a missing heir from the late owner claiming your property as their rightful inheritance. In that case, the title company will analyze the quitclaim deed and other documents related to the ownership transfer.
The title company will also follow the relevant state laws to notify the heir of vital documents they’ll need to sign to lose their interest in the house.
How Title Insurance Protects Your Ownership Rights
Some issues might surface after a property transfer ownership, impacting the ownership rights. From unknown heirs claiming the house to property line disputes, the owner’s title insurance policy ensures the title company defends you in court during such events and repays your property equity if any of the claims are valid.
How to Find the Best Title Company
Now that you’ve gotten the answer to your question, what does a title company do? It’s time to choose a title company for your real estate process.
If your state doesn’t have a fixed title insurance rate, it’d be best to search for a good deal to save cost. Ask your real estate agent, family members, or friends for referrals. Seeing as your ownership rights is on the line, it’s crucial that any title company you’ll be working with is experienced, has positive reviews, and has excellent customer service.
Consider checking for title companies that offer discounts when you bundle owner’s and lender’s policies. You might try negotiating the title insurance cost when writing your letter to the property seller indicating your seriousness in buying the house. However, it’d be best not to include title insurance costs if it’s a seller’s market due to bidding competition.
How Title Companies Determine a Title’s Validity
A title company’s role is to ensure the home title is legitimate and enforce the buyer’s ownership rights. Therefore, to ensure the home title is valid, the title agent will conduct a title search by thoroughly examining the property records to ascertain that the home legally belongs to the seller and that there’s no partial or complete ownership tussle regarding the property.
During the search, the company looks for any unpaid taxes, judgments, liens, or outstanding mortgages on the property. They’ll also check for leases, easements, or restrictions that might affect property ownership.
The title company might request a property survey to determine your property’s boundaries and whether there are encroachments on these boundaries by neighbors. At this point, the survey will determine if any easements might affect the ownership claim.
Before the company issues title insurance, it’ll first create an abstract of title, a summary of the title search result showing the property ownership history. After that, it’ll give the buyer a title opinion letter, a legal document that attests to the title’s validity.
What Is a Title?
A property title shows your legal right to own a property. Therefore, to ensure a smooth legal ownership transfer of your new home, you need to determine that the property is unencumbered and free of defects, meaning there are no partial or full ownership claims from anybody.
Who Should Pay Lender’s Title Insurance?
Although a mortgage lender’s title insurance only protects your lender’s interests and not your home equity, it’s your responsibility to pay the insurance as the intended property owner. The amount you pay for the lender’s insurance depends on the loan amount.
Is It Compulsory to Work With Title Companies?
You’ll need to work with a title company if you’re considering getting a loan for a home purchase. However, if you’re paying cash or the property is situated in a state where it isn’t compulsory to work with a title company, you can skip the arrangement.
Working with a title company is important if you’re in the market for a new home. Have you been wondering, what does a title company do? Well, a title company will help ensure you don’t run into any legal trouble with your purchase by offering title searches, property surveys, and, most importantly, title insurance.
Title insurance protects a home buyer from any legal issues that may arise from dealing with a previous owner. So whether you’re buying your first or fifth home, ensure to work with a qualified title company. If the price of hiring one is too much for your budget, consider negotiating the cost of title insurance alongside the home purchase price while making your offer.
The home buying process is tasking and complicated. However, working with a competent and experienced real estate agent can make all the difference. Are you looking to become a new homeowner and want to work with a knowledgeable local real estate agent? Reach out to us at Homes by Ardor.
Our team of licensed and professional realtors is always available to offer you seamless and fast home purchases.
Kris Reid is the CEO of Ardor SEO, a company that helps real estate professionals get more leads and customers to predictably grow their business.
Over the years, Kris acquired extensive knowledge of SEO and its practical applications in various industries, with the main focus on real estate.
In 2021 Ardor launched the Icons of Real Estate Podcast to share proven strategies from the top producing icon agents with the real estate community.
After obtaining the real estate license in 2022, Kris joined eXp Realty and launched Homes by Ardor, the platform that was built to be the fastest way to buy or sell a house. Homes by Ardor also provides leads for its partner companies and realtors.