In the early days of American history, when you wanted to buy property, a conveyancer handled the transaction. Part of their job was to find out if the property title was “unencumbered”: no one other than the seller had ownership rights to a property, and there were no liens on it, meaning someone else could take the property to pay a debt. But there was no guarantee or insurance that held conveyancers accountable if they were wrong.
Today’s title companies research property titles just like conveyancers did. But since the late 1880s they’ve also provided title insurance. That’s their guarantee that if a problem turns up they didn’t find, you’re protected.
What Is A House Title?
A house title is the ownership record of a property. It’s different from a deed, which is a document you get at closing that states you own the property. The title shows who’s owned the property in the past, contains a physical description of the property, and shows any liens on it. If you just bought the home, your mortgage will be on the title as a lien.
What Is A Title Company And What Does It Do?
The title company is a third party that works on behalf of both the lender and the buyer. You hire them to research and insure the title of the home you’re buying.
Why is that important? Let’s say you buy a home without hiring a title company. Later on, you find out the seller inherited the home when his father died and actually only owns half of the home. The other half belongs to his brother, who turns up on your doorstep wanting his 50% of the property. You can imagine what an unpleasant situation that would be for everyone.
A search from a title company would have revealed the second owner and stopped the sale before you close on the mortgage. They also look for existing liens, so you won’t find out the hard way a contractor never received payment for past work completed on the home and is now expecting payment from you, the new owner.
Now that you know what a title company is and they’re important, here’s what you can expect for your money.
Title Research and Property Survey
In addition to researching public records to verify ownership and check for liens on the property, your title company will make sure all property taxes are paid in full. They’ll also conduct a property survey. Required to close on a home in most states, surveys ensure that the home occupies only the space indicated on the title. It goes the other way as well; you want to know if your neighbor’s fence is actually on your property.
When research is complete, the company provides a report called a “title abstract.” You and your lender will get a copy to review before you close on your home. The abstract is not your title insurance policy. That’s a separate document you’ll get from your agent.
Title companies provide two kinds of title insurance policies: one for you, the buyer, and one for your lender. Because your lender has a financial interest in the property, title insurance protects them the same it does you: financially and legally, in the event that someone comes forth with a claim for the property that was missed in the title search.
Generally, the seller of the home you’re buying pays for your title insurance policy, and you pay for your lender’s policy. But unlike most insurance policies that require you to pay a yearly or monthly premium to keep your coverage, you only have to pay title insurance once when you close on the property. You’re then covered for as long as you own the home.
Who Holds The Title?
It’s important to work with your title company to make sure that the wording on on your title accurately describes who has right to transfer ownership. Your title phrasing may also affect how you pay property taxes and fees if you sell your home in the future.
If you’re not married and the only one on the title, it’s easy: you hold the title in sole ownership as Your Name, a single person. But if you’re married, or live in a community property state, it gets more complicated. Your title company will help you understand what’s best for you and what the title should say.
Title companies usually manage the closing on your home. This service may be called “settlement.” They appoint a signing agent or real estate attorney (depending on what your state requires) to review all closing documents and finalize the deed and title transfer.
Title companies may hold and manage money in escrow. An escrow account is a savings account managed by a third party, in this case the title company, which distributes payouts under certain conditions.
Escrow accounts are common in real estate transactions because mortgage lenders want to make sure that you have enough money for certain expenses. For example, if your lender requires a certain number of months’ worth of expenses held in escrow, a title company will likely manage this account on behalf of both you and your lender.
All parties involved in the home selling, buying and mortgage process will need to send or receive funds related to the transaction. Work closely with the agent from your title company; when you need to transfer funds, they’ll help guide you to the safest and most convenient methods.
How To Choose A Title Company
Which title company you decide to use is completely up to you. Some key things to ask when you’re researching the title company to research your title include:
- How long has the company been in business? Experience counts when it comes to something as big as buying a home.
- How many employees do they have? Will a small company be able to give you the attention you need?
- Do they offer all the services you need to keep the process smooth, from title insurance to closing?
Your title shows who’s owned the property in the past, contains a description of the property, and shows if there are any liens on it. Your title company is a neutral third party you hire to research and insure the title of the home you’re buying. Plus, they'll manage the closing of your home.
Amrock Inc., a title company doing business in all 50 states, has more than 20 years of experience, offers a single point of contact, easy and reliable communication, extended hours, and the freedom to close on your schedule. Call (888) 848-5355 to learn how Amrock can help you complete one of the biggest deals of your life.
See What You Qualify For
Closing Costs: What Are They, And How Much Will You Pay?
Mortgage Basics - 13-minute read
December 24, 2020
It can be tricky to sort through closing costs, so we broke down what they are, how much they cost, who’s responsible, and how to minimize your expenses.