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Acquiring or disposing of a property is not merely a financial transaction and foolproof paperwork. It also involves transferring ownership rights from the seller to the buyer, which necessitates the involvement of a title company. Let’s understand how.
A title company guards you against a risk you’ve probably never considered when purchasing a home: a claim or lawsuit from the previous owner. You won’t be shielded from that risk by your deed, but by the title insurance. A title company offers title insurance, title search, and settlement services to help you make sure that your property rights are truly yours.
This neutral third party ensures that the title to a piece of property is legitimate – protecting your money lender and you, the owner, against lawsuits or claims resulting from disputes over the title.
Interestingly, the oldest title insurance company was the Law Property Assurance and Trust Society. It came into existence in 1853 in the state of Pennsylvania.
What is a house title?
The title of a house serves as proof of ownership and includes information about previous owners, a detailed description of the property, and any liens that may exist. When purchasing a home, your mortgage will be recorded on the title as a lien. It’s important to note that the title differs from a deed, which is a document given to the buyer during the closing process to signify their ownership of the property.
A title includes the rights, uses, and privileges that come with ownership of a piece of real estate. At the time of selling a house, a title company conducts a title search – offering settlement services to help close the deal. More importantly, it offers title insurance to the new homeowner and the mortgage lender.
What is the definition of a title company?
A title company aka title insurance company is an independent party (apart from the lender, the buyer, and the home seller) in a real estate transaction.
A home sale will typically have a title company overseeing the transfer of the property rights from one owner to the next – making the process seamless by ensuring that there’s no encumbrance on the home’s title. And that the home seller is indeed the legal owner of the property and has all the rights to sell the property to the new buyer.
Why hire a title company?
Usually, a real estate attorney requests such a service on behalf of a buyer. It could also be on behalf of a seller who’s looking to have a smooth home-selling deal and conclude a loan transaction. It helps them handle all paperwork, coordinate the closing process, and negotiate any settlements or lien payouts.
The title company searches thoroughly through public records, the property’s transaction history, and its title for any inconsistencies. It verifies who has the title to the property. The company even reports the quality of the title – whether it’s owned free and clear or has a cloudy title.
Therefore, the prospective homebuyer is assured that the home seller is the actual property owner – not someone authorized to convey title through the power of attorney on behalf of the owner.
Moreover, title companies provide services such as holding an escrow account, document notarization, and/or recording the deed with the county. All these services help assist the buyers and sellers in closing the transaction. Another advantage of hiring a title company is that it protects the mortgage lender if title issues arise in the future.
What does a title company do?
If you don’t have title insurance, situations such as purchasing a home and finding out later that someone has a legal right to the property due to a court settlement that was not previously disclosed to you could become a problem. It’s important to consider these scenarios as they could have serious consequences.
A title company, as the name suggests, makes sure that the home’s title is free of any legal issues and flaws that can affect the buyer’s use of the property.
The typical services that a title company offers include:
- Completing a title search to identify the legal owner of the property
- Facilitating escrow funds for the financial transaction
- Conducting thorough property surveys
- Uncovering any encumbrances against the property that can affect its transferability or limit its usage.
- Giving out title insurance
- Overseeing the closing
What are some common title defects?
Some legal issues or defects can make the transaction highly risky and problematic. A title company helps to identify and fix these problems. They could be liens on the property, restrictions, such as easements or other rights to the use of the property, any fraudulent transfers, unpaid taxes or mortgages in the past, unknown heirs, or wake-up court judgments.
It’s critical to ensure that any title problems are resolved right away if they are discovered. In the worst-case scenario, title issues could result in the deal falling through. A real estate law professional should be consulted as soon as the title company identifies any problems or defects.
What is the meaning of title insurance?
An important service that title companies offer is the issuance of title insurance. It’s a type of insurance, the only type, that insures the past up to the present day through a one-time fee. It promises to protect the real estate owner for as long as they own the property.
There are two types of title insurance policies:
- Lender’s title policy: It protects the mortgage lender against any potential title defects that could affect the mortgage loan’s security.
- Owner’s title policy: It’s a great way to safeguard the interests of a homeowner against any future claims to the property. The policy coverage lasts until the buyer has an interest in the property.
How much does a title company charge for services?
Title service costs vary from one state to another – depending on the type of service. The cost ranges from $1,000 to more than $1,500.
Issuance of title insurance may cost more depending on the coverage amount. A typical owner’s policy or a lender’s policy costs $1,000.
Who pays for the title insurance? The buyer or the seller?
The answer depends on your state. Oftentimes, it’s the buyer who pays for title services and title insurance. But keep in mind that closing costs are generally negotiable between the buyer and seller. They may decide to split the cost before signing the sale contract.
What is the best way to choose a title company?
Generally, it’s the buyer’s real estate agent, lender, or real estate attorney who recommends a title company. The best way to select a title company is by asking around and researching. Once you speak with each company, find out their rates and fees and check their online reviews to make up your mind. Make sure you choose a licensed, accredited, and reputable company.
A typical interview would entail questions regarding their experience in the business, the underwriter’s name, the amount of liability insurance, title coverage, the number of title claims, the duration of the title search process, and their method of handling escrow fraud.
When a property is bought or sold, it usually involves a title search and title insurance for the benefit of the home’s new owner and the mortgage lender. Furthermore, the title tells you exactly who are the past property owners. Moreover, it has a description of the property and identifies any liens on it. Also, the neutral company helps the buyer and seller manage the closing of a house.
Who are the biggest title companies in the U.S.?
Some of the best title companies include the First American Title Insurance Company, Old Republic National Title Insurance Company, Fidelity National Title Insurance Company, Attorney’s Title Insurance Funds, Inc., and Chicago Title Insurance Company. Apart from these big national players, there are several smaller local operations with good experience.
When do you require title insurance?
A lender’s title insurance policy is mandatory if you’re financing a home purchase with a mortgage. Buying an owner’s title insurance policy is optional. Keep in mind that there is no federal law mandating hiring a title company or buying title insurance. However, it’s a smart way to protect yourself from losses resulting from title defects. Moreover, the company researches the property in detail to ensure that the sale can proceed seamlessly.
What documents does a title company need at closing?
The buyer will require proof of insurance and photo IDs. Remember that the documentation requirement will depend on the title company and the services you want to include.
Can a title company remove any liens on the property?
Although a title company cannot remove liens, it can help sellers negotiate with any lienholders identified during the title research process. Ultimately, the seller covers any payments or settlements.