What role does a title company play when you're buying a home?
You may have heard the saying that no one gets to their current situation entirely on their own. The same goes for a home sale. Many "players" play a role in the process, starting with the seller, the lender and - of course - the buyer.
But there are several others involved in such a transaction, some of which aren't nearly as well understood as those just mentioned. Case in point: the title company. You've undoubtedly heard that such a thing exists, but you may not know precisely what one does.
They play a uniquely important role that is fundamental to homeownership and knowing that the property you purchase is on the level.
What does a title company do?
At the most basic level, a title company is charged with making sure a piece of real estate is indeed from the person or party you assume it to be from. It does this by performing its due diligence through a series of actions, some of which include conducting a title search, coordinating with legal entities or state regulatory agencies and checking to see if a title insurance policy exists on the property. Dotting the I's and crossing the T's in this regard provides reassurance to the buyer that the seller has the right to sell the property in the first place.
Imagine what it would be like if you were to move into your newly acquired property, when out of nowhere, someone raps on your door and says the house you bought was sold to you illegally. It would be an awful situation, and unfortunately, one that all too many people have been through. The verification processes title companies go through are for this very purpose.
In short, if someone were to ever make such a claim, you could point to your title - which is a legal document - as the reason they're incorrect.
How does a title search work?
The title search itself is among the most critical functions of a title company, because the findings can ultimately impact whether the transaction can go forward as it was initially intended or if adjustments or concessions may need to be made. Unpaid taxes, liens, lines of credit, second mortgages or assessments can all turn up in a title search.
The title company then summarizes the findings in a comprehensive report and may offer recommendations about how to proceed. The hope, of course, is that the search will turn up nothing, but if there is a red flag, the firm will be able to offer insight on what happens next. For example, if a balance remains on the previous mortgage, what's left of the cost will need to be paid off in full before the title can change hands. This is typically done during the closing process.
Another potential outcome of a title search is the presence of an easement, which is essentially an agreement - typically in writing - that specifies the property can be used for or in a certain way by someone else, be it an individual, family or group. That other party may need to be consulted to see what the circumstances of the easement are and whether the agreement can be amended now that the property is due to be under new ownership.
Ideally, these things would be brought up by the seller and the listing agent, but a title search ensures that nothing potentially compromising gets missed. Because there are so many aspects to buying a home, this type of verification can provide reassurance that nothing will be.
Where does title insurance get involved?
It's usually after the search that title insurance is issued. These policies are designed for the lender as well as the buyer to serve as a resource if a dispute ever arises related to ownership claims.
The insurance policy can establish that a claim to ownership is baseless. Or, in the off chance that what they espouse is true, title insurance can cover the financial costs that may result, such as legal fees or funds to buy a new home.
Generally speaking, two separate policies are issued for title insurance, one to the lender and the other to the buyer. Title insurance is usually obtained and paid for at closing and even though the lender owns one of the policies, the homeowner typically buys both. In some instances, the seller may buy it for the lender.
It's important to mention that an owner's title insurance policy is rarely mandatory; however, a lender's policy is, as it may be a precondition for the lender to offer you the mortgage to begin with. It gives the lender more reassurance that they'll be made financially whole if problems arise.
Does the title company conduct the closing?
Another function of the title company is to prepare the closing documents and conduct the closing. However, this is not true in all States. Many States allow attorneys or title companies to conduct closings while others require the documents be prepared by attorneys. In some cases, the use of independent escrow firms is also allowed. This may seem a bit confusing, but don’t worry, your lender knows which one to use to meet your State’s requirements.
If there is any portion of the homebuying process you're foggy about, Residential Mortgage Services will make it clear as day. Contact us today.