Title companies play a significant role in real estate transactions. In fact, they play quite a few roles. With home values rising and buyers paying high prices for homes, title companies' roles are more important than ever. Buyers paying these high prices for homes deserve protection.
The Title Company's Role
First and foremost, it's the title company's role to perform a complete title search and be sure the seller conveys clear title to the buyer in a real estate transaction. The title company can also hold the earnest money deposit in a third-party escrow account. Many times, the closing takes place at the title company. In the article, What Does a Title Company Do? on homebuyer.com, author Dan Green states, "The title company provides three key functions in the real estate process:
1) Determines and eliminates issues that might jeopardize your ownership rights.
2) Provides insurance policies to protect the lender and the homeowner.
3) Handles closing details and escrow accounts."
The title company searches public records to verify who the current owners are and be sure the current owners have the right to sell the property. In the same article, Green says, "This seems straightforward, but issues like a divorce decree or the passing of an owner can complicate who can sell the property." The title agent verifies the legal description of the property, examines the survey, looks at the current mortgages on the property, and searches for judgments or other liens on the property. These liens can include unpaid taxes, mechanics' liens or unpaid child support. After all these components are searched and examined, a title insurance policy is issued. This policy protects the owner's and lender's rights to the property upon conveyance of the property at closing. As a buyer, you don't want to purchase a home that has what the industry refers to as "clouds on the title." In fact, lenders require a title insurance policy before they will provide the buyer with a clear to close.
Who Chooses the Title Company
At the end of the day, it is your right as a buyer to choose a title company. Many real estate agents will have recommendations. In states where real estate attorneys are used, many times the attorneys have affiliations or arranged business agreements with title companies, so they will choose the title company on behalf of their clients. Both buyers and sellers pay for their parts of the title insurance policy. There are some contracts that allow the seller to choose the title company. All in all, it is important to choose the right title insurance company. In the same article, Green suggests, "Compare years of experience, inquire about services offered, and ask what they charge for those services."
Where are Title Companies Used?
If you're obtaining a mortgage loan for your home purchase, a title company is necessary. The only time a title company is not necessary is if you're paying cash or located in a jurisdiction where a title company is not required. Each state has different regulations. However, even if you are paying cash for a home, it is in your best interest to use a title company to do a title search and be sure you are receiving clean title.
Title companies are more important than ever before with today's high home values. If you are paying top dollar for a home today, you will want to be sure you protect your investment. If you purchase a home with clouds on the title now, you may have trouble selling it in the future.