What Is a Title Company, What Does It Do? | Step by Step Guide

First-time homeowners are usually surprised by the sheer complexity of the process of buying a house. It is a far cry from the olden days when a good handshake was enough to seal the deal. The modern-day process requires a lot of documentation and verification that is designed to protect the interests of both parties.

To buy a house these days you need to involve a lot of people to handle different aspects of the process. This is usually the first time you will hear of title companies. If that is the case, then this guide will help you understand more about what a title company is, and what it can do for you.

What Is a Title Company?

A title company is responsible for conducting what is known as a title search, which is the research of a property’s title to confirm the ownership history of the property. It also provides other relevant information such as a complete description of the physical property and also exposes any liens that might be attached to the property.

Back in the day, this process was handled by conveyancers, but they have one fundamental difference from a title company. Where a conveyancer is not legally held accountable for any important information that might not be brought to light, a title company provides guarantees and insurance to protect you in case anything goes wrong.

What a Title Company Can Do for You:

The first and most important mandate of a title company is to research, acquire, and hand over the house title to the buyer. It provides the buyer with the assurance and confidence that the property they are buying has no outstanding liens to it or any unknown owners that will show up and make claims on it.

Now that you have a better understanding of title companies, the following is a brief discretion of the services you can expect when you engage a title company:

• Chain of Title

The chain of title will expose any unknown owners who might have legal rights and claims to the property. These might be current owners who have a stake in the property of historical owners who were not fully compensated upon transfer of ownership.

Any existing liens to the house as a result of legal action or debt recovery processes will also be revealed before you take ownership of the house, and by extension, the responsibility of the lien.

The title company will take a step further and research any personal debts that the owner might have which might affect the sale. These might include things such as outstanding payments to contractors for any repair and renovation work done on the property.

• Property Survey

Although not as common these days as in the past, property disputes do still occur over disagreements on property boundaries. In cases where the disputed part of the land is of significant value, or where the origin of the dispute constitutes a family feud, then the disagreement can become very complicated and costly to resolve.

As a prospective buyer, the last thing you want is to step in the middle of such a scenario, and a title company will protect you from this by conducting comprehensive research on the property boundaries. Upon completion, you will be given a report called a title abstract for you to review before closing any deals.

• Title Insurance

You might be wondering what guarantee you have that the title company will do a comprehensive job of researching the property, and what will happen if any claims are made after you take ownership. The answer is you will be protected by “title insurance”, which is a fee that you pay as a shield against existing but unknown liabilities.

Generally, the payment of the insurance fee is the responsibility of you and the seller. The seller will pay for your part of the fee and you will handle that of the mortgage lender since they also have a stake in the deal. Unlike other types of insurance that require multiple installments, title insurance is a once-off payment.

• Defining the Title Holder

Something as simple as the wording of a title can have a ripple effect that will affect the legal ownership of the property. In cases where you are the sole owner of the property and you are single, then this is a simple matter. However, sometimes extenuating circumstances such as a marriage, or a community of state arrangement, can murky the waters a bit, and the right wording becomes very important. Title companies are well equipped to handle all scenarios of ownership to prevent future disputes.

• Closing

The final settlement agreement on the property purchase, which is generally referred to as “closing,” is the point at which both parties finally reach an agreement on all aspects of the deal. This includes an agreement on all of the above-mentioned key points, which when taken into account, will affect the settlement cost of the property.

This stage is very important and has to be handled in accordance with state law, which might require the presence of a real estate attorney or agent.

• Transfer of Ownership

Payment of the cost of the property usually requires very large sums of money, which cannot just be handed over as a lump sum under normal circumstances. A payment plan is agreed upon between all concerned parties including the lender, and this is overseen by the title company. 

The agreed-upon funds are transferred and held in “escrow” under the control of the title company which will act as the intermediary responsible for the disbursement of funds monthly as agreed upon.

Conclusion

As you can see, the role that a title company plays when overseeing the transfer of ownership during the purchase of property is a vital one. Attempting to forego their services, places a lot of risk on your part because the potential downstream ramifications of overlooking important details might result in huge financial losses or even outright loss of the entire property.

There are a lot of title companies to choose from and it is important to choose one that best fits the size and cost of the property you are purchasing. Your real estate agent should have a lot of experience in this and it is advisable to ask them for some recommendations.

Frequently Asked Questions

• Does a Title Company Remove Liens?

The purpose of a title company is to research and inform you of any liens or legal requirements attached to your intended property. Removal of such is not within the power of a title company as this can only be done by the seller.

• What Happens When Liens Or Debts Are Uncovered?

Depending on the magnitude of any uncovered liens or debts, the seller can either resolve them before continuing with the sale of property, or the entire deal may have to be suspended. Your title company agent will have handled many such cases and can advise you on the best course of action.

• Can I Research The Property Title Myself?

Although most of the required information is a matter of public record, undertaking the research on your own is not advisable because the consequences of overlooking vital information are dire. It is highly recommended that you engage experienced professionals.