You joyfully pick up the keys on closing day, and leave the office triumphant, a thick folder from the title company under your arm.
The title company played a starring role in your day. At least it did if a mortgage is involved! Cash buyers need not hire experts to run a search on the home title, because there’s no lender to protect. But even where buyers pay cash, most people don’t have the time to handle their own title searches.
Thus, most purchases typically involve title companies. A title company provides security and confidence. No new homeowner wants to worry about potential issues or discrepancies in the property’s ownership history.
All in a Day’s Work
A title company’s tasks include:
- Performing a title search. A title professional will review the chain of title — the history of the property’s ownership.
- Checking title activity for possible liens, or other claims to be resolved. Do any other parties have ownership claims? Do unpaid debts exist? What about mortgages, or lines of credit that weren’t closed? Any judgments against the previous owner still secured by the home? Is the seller up-to-date on property taxes?
- Setting up and facilitating the closing day. The settlement agent, often a person from the title company, brings the loan and disclosure documents to the table, and explains them all, one by one, to the buyer.
- Holding the buyer’s earnest money. The title company holds the funds in an escrow account until it’s time to pay the seller.
- Preparing the title in the buyer’s name, and preparing the deed to transfer the title.
- Ensuring the notarizing, recording, and mailing of deed and mortgage documents.
The title company works with the real estate agents, the lender, and the county recorder of deeds.
Clear to Close
The core of the title company’s work involves the title search. An agent goes through various records for potential defects in the chain of title, so that these can be resolved.
The title clearing work must be done before the lender and buyer have a green light to close on the mortgage.
Do title companies ever miss defects? Occasionally, they do.
Public records have been paper-based for generations, and they’re not always perfect. In the histories of some homes, deeds could have been signed by the wrong person, errors could have seeped into the property description, or expectant relatives could have been overlooked by an estate.
Having a title search done isn’t the same as ordering a survey. In case of boundary questions, a buyer or lender should ask for a property survey.
Now, what happens if the buyer was cleared to close, and a title defect was missed?
That brings us to the matter of title insurance. Sometimes, it turns out that a past owner’s paperwork was wrong, or simple typographical errors were never corrected. Missed details can become issues years after closing. The policy exists to protect the asset’s value and ensure the buyer’s ownership remains free and clear of issues.
Peace of Mind
Signed an agreement with the seller? Time to get the title insurance. Your lender will typically suggest a title company that’s active and reputable in the area where you are buying.
There’s a one-and-done premium to pay for the policy, based on the value being protected. That single premium payment covers the title for as long as the owner holds the home. Or it may cover the lender’s interest in the property for so long as that specific mortgage is in place.
Yes, there are two parties who may need the peace of mind offered by title insurance. There are insurance products for lenders (lender’s title policy), and for home buyers (owner’s title policy).
Under state law, a buyer needs to cover the lender’s title risks. The cost is usually less than 1% of your agreed-upon purchase price. The premium gets folded into your closing costs.
Getting an owner’s title policy is optional. But if a lender is getting coverage anyway, then additional coverage naming the owner as beneficiary shouldn’t be very expensive.
The lenders get theirs. As the buyer, should you get your own title insurance policy?
What protection does title insurance really give? Assurance that the company stands by its findings: that no one but the homeowner has a legal right to any interest in the home. What if that turns out to be erroneous? Then, the policy will pay for any defects that are covered by the insurance.
Of course, a title policy won’t protect your title from debts and judgments that your own activities after closing bring about! The basic point of title insurance is to cover the cost of fixing unknown defects that crept into the title in the past.
Just note that protecting a lender does nothing to protect you. The lender wants the title company to solve issues that could arise for their loan collateral. As the loan on your home shrinks every month, so does the lender’s coverage for the title. Paying off your mortgage? That’s the end of the lender’s title policy. This is why buyers might want to seriously consider getting their own coverage for a few hundred bucks.
Shopping Around?
Mortgage consultants and real estate agents will typically recommend a specific title company that can insure your new title. Alternatively, as a consumer, you may do your own comparison shopping.
Some buyers opt to shop around to save money on title services — and the Consumer Financial Protection Bureau points out that shopping for coverage is a buyer’s prerogative. Here are the services connected with your mortgage that you are free to select for yourself. Even if you go with the recommended services, it’s good to know how companies get chosen, and what options you do have. It’s also a great idea to communicate ahead of time to gauge how informative and responsive the company’s representatives are.
Deciding on an owner’s title policy? There’s more than one level of coverage. An extended title policy covers more than the standard policy does.
And what closing methods does the company provide? Does it offer remote online notarization? Does it have mobile notaries? Or will they work with the parties locally, at the agent’s office or their office?
So, price isn’t the only factor to consider. For a policy that helps guard the value of your ownership, the company’s responsiveness matters. So does its track record. An owner’s title policy even protects your heirs’ interest in the property.
Knowing who does what on closing day makes buyers better prepared for the future. We’re glad to offer some points to ponder as you get ready for that all-important day.
Supporting References
Ben Luthi for Ask ExperianTM, via Experian.com: What Does a Title Company Do? (Jan. 4, 2024).
Associates Land Transfer Co., LLC (Pennsylvania Title Insurance Company) via ALTTitle.com: What Is Pennsylvania Title Insurance?
Forbes Advisor Amy Fontinelle, Forbes.com: What Does A Title Company Do? (Dec. 7, 2023). Reposted Dec. 8, 2023) on the website of the New York State Land Title Association, Inc. via NYSLTA.org: What Does a Title Company Do?
And as linked.
More on topics: Title search FAQ, Opinion of title
Photo credits: Andrea Piacquadio and Canva Studio, via Pexels/Canva.