Ever wonder what protects you from buying a home with legal baggage?
This guide will walk you through the role of title companies in the home buying process. We’ll take you through what a title company does, why you need one, and what you should expect as a home buyer.
Imagine closing on your dream home only to realize that it has unpaid property taxes from the previous owner. Or, another person claims ownership of the house. Such scenarios can immediately put a stop to the excitement you had of owning a home and make your experience one of the hardest.
The good news is that a title company is here to help prevent such unfortunate occurrences from affecting your home-buying process.
What Is a Title Company?
We can describe a title company as a neutral third party whose role is to ensure legal property ownership transfer. Buying a home is not all about acquiring a building, but more about obtaining a legal claim to a piece of land. A successful property claim must be clean with no other person claiming rights to it.
The Role of a Title Company Includes:
- Verifying that the seller has legal rights to transfer ownership
- Identifying any issues with the title
- Offering insurance to protect both buyer and seller against potential legal claims
- Overseeing the closing process and managing funds in escrow
In summary, a title company’s main role is to safeguard the home-buying process by preventing future disputes. It generally offers the peace of mind that any home buyer needs.
The Title Search Explained
One of the main responsibilities of a title company is to conduct a title search. This involves a thorough investigation of the property’s ownership history using available public records. The aim is to verify that the seller has legal rights to carry out property transfer without any problems.
The title search helps uncover the following issues:
- Liens: Claims against the property due to unpaid debts.
- Judgments: Legal orders requiring payment that affect the title.
- Unpaid property taxes.
- Ownership disputes.
Ignoring the title search process means paving the way for problems that the buyer could inherit, causing lengthy and expensive legal battles. The title search is a crucial process and the first step to ensuring the property you’re about to buy is clean.
Title Insurance: Your Safety Net
While the title search helps uncover several issues, it’s not usually foolproof. There are still issues that may remain hidden, and you need title insurance for such occurrences.
Title insurance is a policy that protects the buyer and lender from issues that might surface after the property sale. This type of insurance protects against past risks that might affect ownership.
The types of title insurance include:
- Owner’s Policy: Protects the buyer.
- Lender’s Policy: Protects the mortgage lender
There are still issues that might arise after the sale of the property. Imagine a situation where you move in but after a few years, a relative of the seller comes to claim rights to the home. Or, a contractor who never got paid files a lien.
If such a thing happens, the title insurance will cover the legal fees and losses incurred. While many buyers never consider this, it can be invaluable when need arises.
How a Title Company Supports the Closing Process
Title companies are a crucial final step in buying a home.
Here’s how they support the home buying process:
- Coordination: They work with all parties (buyers, sellers, agents, and lenders) to ensure everyone has the right documents.
- Escrow Services: They hold earnest money deposits and manage the disbursement of funds at closing.
- Final Title Review: Before closing, they do a last check to confirm that everything is clean.
- Document Preparation & Recording: They prepare essential documents, like the deed, and ensure they’re properly filed with the county.
The company literally plays the role of a detective, project manager, and legal guardian. Their main role is to ensure everything goes smoothly.
What to Expect as a Buyer
Your interaction with a title company starts the moment your offer is accepted.
From the time you get in contact with them, you can expect the following:
- Contact from the title company with initial paperwork.
- Review of your commitment: A document summarizing findings from the title search.
- Disclosure of costs: You’ll receive an estimate of fees for title searches, insurance, and escrow services. This is often included in your closing disclosure.
To ensure you’re fully informed and protected, here are some of the questions to ask:
- “Do you offer both owner’s and lender’s title insurance?”
- “What does your title search include?”
- “Are there any issues I should be aware of?”
Choosing the Right Title Company
There are instances where the buyer may choose the title company they want to work with. This usually happens when you’re paying cash or when the purchase contract allows it. In other cases, the seller or the lender can get one for you, but you’re still allowed to negotiate.
If you’re choosing a title company yourself, ensure you look for the following:
- Reputation: Their track record matters a lot.
- Transparency: Be clear about their services and fees.
- Local expertise: Ensure they understand the laws and practices of the region.
Tips for vetting a title company:
- Read online reviews and ratings.
- Ask your real estate agent for recommendations.
- Confirm they’re licensed and insured in your state.
Common Misconceptions About Title Companies
“It’s just paperwork.”
Title companies do far more than shuffle documents. Working with one can help you prevent costly legal disasters.
“The lender handles everything.”
While the role of lenders can’t be underestimated, they may not have the same interests as yours. The title company protects both parties, especially with the owner’s policy.
“Title insurance is optional.”
Lender’s insurance can be mandatory. However, an owner’s policy is optional, but it’s still highly recommended. This is a one-time cost with the potential to save you a lot of money later.
Conclusion
A title company might work behind the scenes, but their impact is front and center in the home buying process. From verifying legal ownership to managing closing logistics, their role is crucial in protecting your investment from future squabbles.
Final Tip: “Don’t underestimate the value of a clear title—choose your title partner wisely.”
Have questions about the title process? Want to feel more confident in your home purchase? Download our free Homebuyer’s Title Checklist or contact us today for personalized guidance.
