What is a title company?  What do they do?

Purchasing a home, for most people, is the largest financial venture they will ever undertake. The professional services of a title company should be secured to accurately handle this complex transaction.

While many people think of the title company as simply coordinating the settlement process, their job begins well before that. The title company will do a “title search” which involves searching real estate records in the county where the specific piece of property is located. A title search will determine the legal owner of the property; reveal any mortgages, liens, judgments, or unpaid taxes that will have to be cleared before the property can be sold; and detail any existing easements, restrictions, or leases affecting the property.

Once the search has been completed, a “commitment of title insurance” is prepared for the lender and/or the prospective buyer. The title commitment distinguishes all issues that need to be completed and discloses any problems that need to be corrected in order for the buyer to receive a “clear title”. The title company undertakes correction of any problems to produce property with clear title and thru their underwriter issue a policy of title insurance covering the lender and the buyer. Once these things are done the parties are ready to exchange paperwork and “close” the deal.

Additionally, the title company generally acts as the settlement/escrow agent. This is less costly than choosing another company, and some lenders do their own settlement or closing. The closing is necessary to sign and exchange all the documents necessary to convey title, secure the lender, and explain costs to each party. This is done by preparing a closing statement. The closing statement will include the mortgage lender’s charges, charges for preparing documents, the title company’s fees, recording costs, and the amount of the payoffs to release any existing mortgages, pro-ration of city and county taxes, real estate commission fees, survey fees, and any other costs associated with the deal.

At closing, the title company will collect purchase money and closing costs from the buyer, in addition to closing costs from the seller. Once both parties have signed their particular documents and approval is given by the lender, the title company will record the legal documents (deed, mortgage, assignments, etc.) at the county courthouse. The lender will then wire funds to the title company to pay all expenses of the transaction, paying off any existing mortgages, and paying the seller their net proceeds of sale. All of this is done per the lender instructions, in accordance with the closing settlement statement.

What is title?

Title is the right to, or ownership of, a specific real estate property. The main rights conferred by a real estate title are: right of possession, right of control, right of exclusion, right of enjoyment, and right of disposition. Change in ownership can be initiated by a will, court decree, law, or sale of a property. The transfer in ownership is recorded in a deed and filed with county records.

What is title insurance?

Title insurance protects a homeowner or lender against financial loss from real estate title defects or liens against a property. Any property that has undergone several transfers of ownership — including when it was undeveloped land — could have a hidden title issue that can affect the current homeowner or lender. 

What are the most common situations covered by title insurance?

The most common situations covered by title insurance are: forged deeds, inaccurate property legal descriptions, heirs claiming an interest in the property, unpaid taxes from a prior owner, no right of access to and from the land, or when someone else has filed a lien against your title.

What is a Closing Disclosure or CD?

A Closing Disclosure, or CD, is a form that provides final details about the mortgage loan buyers have selected. It includes the loan terms, projected monthly payments, and how much one will pay in fees and other costs to get a mortgage (closing costs). It also shows the purchase price for the home and reflects and prior deposits made, allocations between the parties for property taxes, condominium or homeowners association fees, credits from one party to another, and the costs for title services, title insurance and government recording and transfer charges. It is the summary document for all the money connected to the purchase of the home between the buyer and seller. Buyers and sellers have separate Closing Disclosures.

Lenders are responsible for preparing and delivering the buyer's CD and work hand in hand with the title company to prepare the final CD. Title companies generally prepare and deliver the seller's CD.