What Is a Title Company and Why Is it Important?

A title company performs a broad range of duties to help close a real estate sale. The company can issue title insurance, serve as a settlement agent and hold escrow funds and paperwork during the transaction.

The first step in buying a home is to obtain a title search from a title company. The title search looks for any outstanding mortgages or liens on the property, unpaid property taxes, and utilities. It also checks that the legal description of the property matches its actual physical boundaries. 

Once the title is clear, a title company issues both lender's and buyer's title insurance policies. This protects the mortgage lender and new owner against potential ownership conflicts or claims that the property isn't theirs.

Title companies may order a property survey, which determines the dimensions of the land and any easements that might affect your ownership rights. It can also discover encroachments from neighboring properties, shared yards, and other legal restrictions that could interfere with your ownership claim.

Depending on the state, title companies can issue a homeowners insurance policy for the new owner of a home. This protects them from potential damage to the property, including fire or theft.

A title company will also ensure that all previous owners have been removed from the property. This can prevent anyone else from claiming ownership of the home and preventing the buyer from closing on it.

When a home is under contract, the buyer and seller will contact the title company to conduct the title search. The title company will write a document called the "title abstract." This shows the history of ownership, identifies any outstanding mortgages or liens, confirms that property taxes and utilities are paid and up to date, and explains any possible encroachments.

Once a property is under contract, the title company will work with the buyer's and seller's real estate agents to complete the transaction. This can include reissuing loan documents, making changes to the final loan amount, or adding a cosigner.

It also helps if there are any changes in ownership, like the addition of a trust or an LLC. These may require additional legal documents to be reviewed to ensure they conform to the title insurer's guidelines.

During the closing process, the settlement agent from the title company will review all documents and explain them to the parties involved in the sale. They will then collect check payments, distribute them, and double-check all paperwork.

A settlement agent will prepare and distribute the title insurance policy in the final stages. They will also ensure that the loan documents are filed with the appropriate entities and that any additional monies have been distributed accordingly.

The final steps in a real estate transaction are necessary, and having a good title company working for you is essential. Ask your real estate team or friends and family for recommendations. Then do your research on each company's services to find one that's right for you.

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