Why are title companies needed?
Title companies are needed because organizing and exchanging funds, information, and back-and-forth details can get messy. Remember when you and your siblings were fighting over a toy you two had when you were younger? It’s mine! No, it’s mine! Ring any bells? What happened next? Well, your parents stepped in and facilitated the process of who was really had “ownership” of the toy at that time.
The intervention of a title company is similar.
Title companies review the title to determine ownership, coordinate insurance policies, and organize the official closing. It didn’t feel fair for your big brother or sister to barge in the room, see something that they wanted, and then claim it as “theirs”, right? Fortunately, title companies, acting as non-biased intermediaries, assisting in searching for a title and providing title insurance. This way your toy gets to stay yours because, not only did your parents find the receipt (title), but they insured that no one realistically barge in and claim that the toy (house) belongs to them instead.
What is a title search?
A title search is the action of recovering documents that show proof of an event associated with property. Just like finding a receipt to be able to prove that you bought something.
If you’re buying a home, a title search is usually done to answer the following questions: Is the seller allowed to sell this property, are there any reasons why the seller can’t sell, and does a lien need to be paid off first prior to transferring ownership?
Who is involved at a Title Company?
While your real estate agent and loan officer (if you’re getting a mortgage), are heavily involved with the title company, there are two primary people who you’ll work with at the title company:
- Escrow Agent / Title Officer: The neutral middleman. This role has a fiduciary duty (ethical responsibility with both sides) during exchange of money and/or assets.
- Processor: The “attention to detail” person. This role focuses on completing, reviewing, fact checking, and submitting forms to ensure everything was done correctly.
What does a title company do?
In short, a title company ensures that the legal right of ownership (title) is authentic & valid. After the title is declared legitimate, the title company then provides a new title, and insurance for the property, now that ownership has changed.
When the title company steps in – generally after there is an accepted contract is in place – it coordinates these things:
- Places the buyer’s earnest money (or the “I’m good for it. Seriously” money) in an escrow account
- Performs a title search to ensure there are no liens or encumbrances (someone trying to claim your property)
- Provides insurance on title (to protect the buyer if someone from the past tries to claim they have some ownership/lien on the property)
- Issues a deed. (This allows the title to be able to be transferred from the seller to the buyer)
- Coordinates signing of all settlement statements (summarizing all fees and charges) at closing
- Ensure all money from the purchase price is distributed fairly & appropriately
What is title insurance?
What happens if there is a problem with the new home you purchased? Leaky pipes, furnace breaks shortly after purchase, etc. According to national mortgage experts at Delmar Financial, “Title insurance gives the new homeowner peace of mind in case of discrepancies. In essence, a title company researches the history of the property through public record and legal documents.”
Traditionally, homebuyers and lenders require proof of title insurance because no one likes to be caught off guard without a safety net. Basically, this serves as protection, against a possible lawsuit, for the new owner and lender if someone claims that they have right to the new property you just bought.
How long does it take a title company to clear a title?
Roughly, this procedure of back and forth with a title company takes about two to six weeks. This period of time is what people refer to when they say that they are “in escrow”. For a more accurate timeline, since every situation is different, asking this question to your real estate agent is your most accurate option.
