The title company is a third party that works on behalf of both the lender and the buyer. You hire them to research and insure the title of the home you’re buying.

Why is that important? Let’s say you buy a home without hiring a title company. Later on, you find out the seller inherited the home when his father died and actually only owns half of the home. The other half of the inherited home belongs to his brother, who turns up on your doorstep wanting his 50% of the property. You can imagine what an unpleasant situation that would be for everyone. The title company and the title insurance policy you purchase from them will protect you from any liability and is an important part of the closing process.

Now that you know what a title company is and why they’re important, here’s what you can expect for your money.

Chain Of Title
Title companies will research what is called the “chain of title,” or the full history of the home’s ownership. A search from a title company would have revealed the second owner and stopped the sale before you close on the mortgage. They also look for existing liens, so you won’t find out the hard way that a contractor never received payment for past work completed on the home and is now expecting payment from you, the new owner. They’ll also make sure all property taxes are paid in full.

Title Research And Property Survey
Your title company will conduct a property survey. Required to close on a home in most states, surveys ensure that the home occupies only the space indicated on the title. It goes the other way as well; you want to know if your neighbor’s fence is actually on your property.

When research is complete, the company provides a report called a “title abstract.” You and your lender will get a copy to review before you close on your home. The abstract is not your title insurance policy. That’s a separate document you’ll get from your agent.

Title Insurance
Title companies provide two kinds of title insurance policies: one for you, the buyer, and one for your lender. Because your lender has a financial interest in the property, title insurance protects them the same as it does you: financially and legally, if someone comes forth with a claim for the property that was missed in the title search.

Generally, the seller of the home you’re buying pays for your title insurance policy, and you pay for your lender’s policy. But unlike most insurance policies that require you to pay a yearly or monthly premium to keep your coverage, you only have to pay title insurance once when you close on the property. You’re then covered for as long as you own the home.

Determining Who Holds The Title
It’s important to work with your title company to make sure that the wording on your title accurately describes who has the right to transfer ownership. Your title phrasing may also affect how you pay property taxes and fees if you sell your home in the future.

If you’re not married and you’re the only one on the title, it’s easy: you hold the title in sole ownership. But if you’re married, or live in a community property state, it gets more complicated. Your title company will help you understand what’s best for you and what the title should say.

Closing
Title companies usually manage the closing on your home. This service may be called “settlement.” They appoint a signing agent or real estate attorney (depending on what your state requires) to review all closing documents and finalize the deed and title transfer.

Funding
Title companies may hold and manage money in escrow, with the help of an escrow agent. An escrow account is a savings account managed by a third party – in this case the title company – which distributes payouts under certain conditions.

Escrow accounts are common in real estate transactions because mortgage lenders want to make sure that you have enough money for certain expenses. For example, if your lender requires a certain number of months’ worth of expenses held in escrow, a title company will likely manage this account on behalf of both you and your lender.

All parties involved in the process of buying a house will need to send or receive funds related to the transaction. Work closely with the agent from your title company; when you need to transfer funds, they’ll help guide you to the safest and most convenient methods.

FAQs About Title Companies And How They Help Buyers And Sellers
Title companies work to help buyers close on properties without issue. If you’re nearing closing or are starting to look for a title company, it’s normal to have a few questions. Here are some of the most common questions people have.

While working with a title company is required by mortgage lenders as a condition of issuing the loan, it isn’t required by law. That said, it’s always a good idea– even if you’re paying cash for a property – since the title company will research the property in detail to make sure the sale can proceed.

The title company is responsible for preparing and providing both buyers and sellers with the necessary documents. Typically, buyers will need to bring a few standard documents like proof of insurance and their photo IDs, but the title company and your real estate agent will be able to let you know if you’ll need to bring anything else with you.

Though title companies primarily benefit buyers, they help sellers by handling all paperwork, coordinating the closing process with the buyers and negotiating any settlements or lien payouts to help the closing proceed.

Title companies themselves cannot remove liens but they can help sellers negotiate and settle with any lienholders uncovered during the title research process. Ultimately, it’s up to the seller to determine the best course of action and cover any payments or settlements.