What does a title company do?

When you find the perfect home, you’re probably ready to sign the papers and move in immediately. But before you get the keys, you need to be certain that the person selling the house has the legal right to sell it to you. That’s where a title company comes in.

What is a title company? It’s a neutral third party hired to research and insure the title of the home you’re buying. It plays a pivotal role in the closing process, ensuring the title is clear of defects and handling the transfer of ownership so you can move forward with confidence.

Key responsibilities of a title company

Depending on the transaction, a title company works on behalf of both the mortgage lender and the buyer to make sure the property transfer is legitimate. Its work begins long before you sit down at the closing table and continues until the final documents are filed with the county.

Its primary duties include researching property records to verify ownership status, preparing the necessary closing documents, managing disbursements, and officially completing the property transfer.

After you close on a house, it provides title insurance to compensate you or the lender if a mistake is made.

Having your title researched and insured by professionals gives you the peace of mind that no one has a claim to your new property but you.

Research the chain of title

One of the first things a title company does is research the chain of title. This is the history of the home's ownership, tracing back from the current seller to the original owner.

The goal is to confirm the seller has the legal right to transfer the property. The title company looks for any breaks in the chain or issues that could jeopardize your ownership, such as outstanding liens or judgments against previous owners. Inheriting a house with siblings is one thing, but you want to avoid surprise claims to your home.

Establish who holds the title

It’s crucial to establish exactly who holds the title to ensure the sale is valid and binding. The title company verifies that the deed accurately names the rightful owner and that the property is free of encumbrances that would prevent a sale.

It checks for easements – legal rights for others to use a part of the property – and ensures that property taxes are paid. If the title isn't clear, the title company works to identify what needs to be fixed before closing on a house.

Perform a property survey

In many cases, a title company will order a property survey. A survey confirms the legal boundaries of the land and ensures the structure occupies only the space indicated on the title.

This is especially relevant for buyers because it reveals whether a neighbor's fence is on your land or whether utility easements cross the backyard. Knowing the exact boundaries prevents disputes and ensures an understanding of your land rights.

Sell title insurance

Once the research is complete, the title company typically issues title insurance. This insurance protects both you and your lender from financial loss if a title defect is discovered after the sale.

There are two types of policies:

• Lender’s policy: This protects the lender’s investment and is almost always required if you’re getting a mortgage.
• Owner’s policy: This protects you, the buyer, for as long as you or your heirs own the home. While optional, it is highly recommended to protect your equity.

To issue this policy, the title company may prepare an abstract of title, a summary of the property's recorded history. An alternative to title insurance is a title opinion letter, also called an attorney opinion letter, which is a legal document stating the attorney's professional opinion on the title's status after reviewing the abstract.

Manage home buying funds

You might encounter two types of escrow accounts when buying a house. While a mortgage escrow account may be set up by your servicer to hold funds for future property taxes and homeowners insurance premiums, the title company creates its own escrow account to ensure that money is only exchanged when the deal is final.

An escrow officer holds your earnest money deposit and other closing funds securely until all conditions of the sale are met. The seller knows the buyer has the funds, and the buyer knows the money won’t be released until the title is clear and the keys are ready.

The title company oversees this entire process, ensuring funds are disbursed to the correct parties – paying off the seller’s old mortgage, covering agent fees, and paying the seller their proceeds.

Manage the closing

Finally, the title company manages the closing, sometimes called the settlement. The agent acts as the impartial referee, ensuring that all closing documents are signed and notarized and that funds are distributed correctly.

After the signing is done and funds are distributed, the title company records the new deed and mortgage with the county or parish government. This official recording is the final step that legally transfers ownership to you.

What documents do title companies need?

To make this happen, the title company needs paperwork from everyone involved. It is responsible for preparing and providing the documents needed to complete the transaction, but it also will request items from you.

For sellers, this might include a mortgage payoff statement. Buyers will need to provide proof of homeowners insurance and funds for closing. The title company prepares the settlement statement (Closing Disclosure or HUD-1 statement), which breaks down the costs for the buyer and seller, and requires that both bring a valid government-issued ID.

What types of issues can the title company uncover?

Title companies look for potential problems that could stop a sale in its tracks. Some common issues they uncover include:

• Liens: While most commonly used for existing mortgage debt, there are also other types, such as tax liens or contractor liens.
• Unpaid fees: Outstanding HOA dues or assessments for special projects.
• Undisclosed owners: Heirs of a previous owner who technically still have a claim to the property.
• Special assessments: Charges levied by the local government for neighborhood improvements.

Discovering these early allows the seller to resolve them and proceed with the transaction.

FAQ

You've got the basics, but let's tackle some common questions about hiring a title company and working with them.

Do I have to work with a title company?

If you’re buying a house with cash, working with a title company isn’t legally required, but it’s risky to skip it. If you’re getting a mortgage, your lender will require a title search and lender’s title insurance as a condition of the loan.

Who picks the title company?

The title company usually represents both parties, so it may be a joint decision. You’re free to ask your real estate agent or lender for recommendations, or you can choose one yourself.

Can I shop around for a title company?

Yes, you can shop around. In fact, it’s encouraged. Title services can vary in price, especially in states where title insurance rates aren’t set by the government. Comparing fees for the title search, settlement, and insurance premiums can save you money.

How much does a title company charge?

The cost of title insurance is a one-time fee paid at closing. Costs vary significantly by state and the purchase price of the home. Generally, you can expect to pay between 0.1% – 1% of the loan amount for a lender’s title policy and the purchase price for an owner’s title policy.

Can title companies remove liens?

Title companies themselves cannot remove a lien. However, they can facilitate the process. They identify the lien and work with the seller to ensure the debt is paid–often using the proceeds from the sale–so the lien can be released. Ultimately, the seller is responsible for the payment.

The bottom line: Title companies protect both buyers and sellers

So, what does a title company do? A title company is a neutral third party that researches and insures the title of the home you want to buy. It handles the heavy lifting of the closing process, ensuring that the property is free of legal defects and that ownership transfers smoothly.

Ready to take the next step in your home-buying journey? Start your application online today.