Curious about what a title company actually does? No problem, we’re happy to help with an answer.
A title company does three things for home buyers:
- Ensures that a piece of property is legitimate
- Transfers the title from seller to buyer
- Provides title insurance for that property
Ensuring a property’s legitimacy is an essential step to protect you from any legal issues associated with the property. A title company will perform the title search, which is the research of public records to determine legal ownership of the property and any existing claims on that property.
Besides researching the property and transferring the title from the seller to the buyer, a title company will also offer insurance.
There are two types of title insurance: owner’s insurance and lender’s insurance. Both are to protect the parties involved from legal fees and claims that may arise over the property. You will likely pay for the lender’s insurance upon closing on the house and may also need to pay for the owner’s insurance.
What does the title company do at closing?
When you are ready to close on a home, the title company is responsible for handling and transferring the title. They may also handle any escrow accounts necessary to complete the closing process.
If the title company manages escrow accounts, they may conduct a formal closing on the home. In this case, the title company will send a settlement agent who will bring documentation, explain it to the parties, collect closing costs, and distribute it accordingly.
The title company will also make sure that deeds, documents, and new titles are filed accordingly.
Who pays the title company fee?
How the title fee or fees are distributed is ultimately subjected to the terms of the contract or local laws. You may be able negotiate these terms with the seller, but both parties will contribute.
If enforced by local laws, a seller will enlist the services of a title company to perform a title search. In this case the buyer will usually pay the title company to transfer the title and handle the escrow accounts.
Depending on where you live, a standard may exist in regards to who pays for the owner’s title insurance. The standard may be that a seller pays for owner’s insurance in some parts of the country or state, and in others, it may be the buyer’s responsibility to cover this fee. In almost all cases, the buyer is responsible for paying for the lender’s insurance.
Keep in mind that the fees and who is responsible for paying them is negotiable and can vary depending on what you and the other parties agree on.
Is a title company necessary?
In some jurisdictions, title companies are necessary as the seller is legally obligated to buy title insurance for the buyer. Mortgage lenders will also typically require the services of a title company as a part of their terms.
This does not mean a title company is always necessary. Cash buyers and those whose state laws do not require one to do so may purchase a home without using a title company. If you do opt-out of using a title company, you must understand the risk you are taking.
The steps taken by a title company are done to protect you from purchasing a property from a seller who doesn’t have the right to do so. Without title insurance, if a claim or dispute were to arise, you can lose both the home and the money you spent to purchase the property.
Additionally, having a title company present to handle the escrow accounts and conduct a formal closing on the home is only beneficial to you. If you do decide to opt-out of using a title company, it is wise to employ the services of a real estate attorney to handle the necessary paperwork.
Title companies may be suggested, but you should not feel that you are locked into any decision you are uncomfortable with. You may choose a title company that best suits your needs, whether it is what is closest to you or the most affordable option. If you can verify both parties are legitimate and can record, sign, and document the transaction, you may want to consider the convenience of using the services of eClosing’s and eNotary’s.