What is a title company and what does it do?
The home-buying process can be arduous and stressful. And just when you think you’re at the finish line, you’re told that you will need a title company to help close the deal.
You wouldn’t be the first to ask (especially as a first-time homebuyer): What is a title company and what does it do? Title companies are one of the least understood – yet most important – parts of the mortgage process. Long after you’ve decided which mortgage is right for you, you find out that a third-party title company will seek to uncover essential information about the history of your potential property. Some of what is discovered during the title work could be so essential that it could prompt you to negate the sale altogether.
To ensure your sale and the process runs as smoothly as possible, continue reading.
Why do you need title insurance?
Understanding the title process and understanding why you need title insurance are both extremely important. Title insurance is protection against loss arising from problems connected to the title to your property. A title means, for example, that you have the right to remove an intruder from your property who does not have the title. Title insurance prevents risk and offers peace of mind to both the buyer and the lender that they will not be liable for past issues with the property. These problems range from fraudulent title documentation, contractors who worked on the house and were never paid for their efforts, boundary debates, judgments on the property and more.
What kinds of title insurance are there?
There are two types of title insurance: one for the buyer and one for the lender. An owner’s policy will identify risks, while a lender’s policy will validate the mortgage. In both cases, the amount of insurance is equal to the sales price of the home. Since the lender’s policy does not cover the buyer, it’s essential for the latter to purchase an owner’s policy to eliminate the chance of undiscovered past issues arising and causing headaches for the buyer.
What does a title company do to complete a title search?
Using public documents and other accessible material, a title company conducts a property title search to verify that the current homeowner has the right to sell as well as to uncover news about a property that would be of significant interest to the potential buyer – news that could end up hampering the transfer of ownership. These items include errors in the record and omitted heirs; they also include:
Real Estate Taxes
Does the current owner owe property taxes? Are there taxes from a previous owner that were never paid? Any past special assessments will also turn up during the home title company search.
Liens
This word, unfamiliar at first to most homebuyers, refers to a financial claim an outside party has on the property. There are many different types of liens, including judgment liens (slapped on those who have lost a lawsuit) and tax liens (put on those who fail to pay federal taxes or state taxes, for example).
Easements
A potential homeowner needs to know if other parties legally can use his or her property. For example, utilities may need to place wiring on the property even though they don’t own the land. Because of that, the property owner may be limited in what improvements or additions can be made in an area considered an easement.
Is a title different than a deed?
The definition of both confuses many homebuyers and sellers, but a title and a deed are different (though they are closely linked). A title is considered to be more of a concept – it gives you the right to roam about the property and alter it as you choose (often as long as a local agency approves the changes, such as if you want to construct an addition). Title also establishes ownership and who the owners are and what happens in the future. It’s important to think through who you want to hold title in the event you pass away suddenly. It avoids the ownership of the property being tied up in probate or in limbo trying to find heirs.
A deed is a legal document that is signed by both the buyer and the seller and transfers the property to the buyer in a fast, secure manner. Deeds are often recorded with an assessor or a courthouse to offer further proof of ownership. If you lose your deed, you would go to the government arm that houses deeds to grab another copy.
How should you choose a title company?
Many homebuyers defer to their real estate agent to pick a title company, given that he or she likely has experience with ones in the area. Those who would like to pick one without the guidance of a real estate agent can Google the phrase “How can I find a real estate title company near me?” to examine local names, check their reviews and call to ask relevant questions before hiring this extremely important connection in the home-buying process. Homebuyers can get a head start on the title process by researching public records themselves, either in person at a local government agency or online.
What is the cost of a title company?
The amount a borrower pays for title insurance varies according to geography, the cost of the home and the policy itself. The expense of fixing problems at the home also enters into the equation. Some states have fixed premiums, while in other states it pays to shop around. In general, title insurance ranges from a few hundred dollars to a few thousand dollars.
In conclusion
A house is usually the priciest investment a person will make in his or her lifetime. No one wants unexpected expenses on top of what he or she is already paying – costs associated with unknown liens, unpaid taxes and other discrepancies from the past. Figuring out how much title insurance will factor into your final bill by using a closing cost calculator will help you know the price of eliminating potential future headaches.
