What is Title Insurance?
A title company makes sure that the title to a piece of real estate is legitimate and then issues title insurance for that property, which protects the lender and/or owner against lawsuits or claims against the property that result from disputes over the title.
Title companies also often manage escrow accounts (these contain the funds needed to close on the home) to ensure that the money is used only for settlement and closing costs, and may conduct the formal closing on the home. At the closing, a settlement agent from the title company will bring all the necessary documentation, explain it to the parties, collect closing costs and distribute monies. The title company will also ensure that the new titles, deeds, and other documents are filed with the appropriate entities.
Once the title is validated, the company will typically issue a title insurance policy, which protects lenders or owners against claims or legal fees that may arise from disputes over the ownership of the property.
There are two main types of title insurance: owner’s title insurance, which protects the property owner from title issues, and lender’s title insurance, which protects the mortgage company. You, the borrower, will pay for the lender’s title insurance when you close on the house, but it’s also a good idea to make sure you have an owner’s title insurance policy as well.
What is a Title Search?
The title company makes sure a property title is legitimate, so that the buyer may be confident that once they buy a property, they are the rightful owner of the property by. To ensure that the title is valid, the title company will do a title search, which is a in-depth examination of property records to make sure that the person or company claiming to own the property does, in fact, legally own the property and that no one else could claim full or partial ownership of the property.
During the title search, the title company also looks for outstanding mortgages, liens, judgments, or unpaid taxes associated with the property, as well as any restrictions, easements, leases, or other issues that might impact ownership. The title company may also require a property survey, which determines the boundaries of the plot of land that a home sits on, whether the home sits within those boundaries, whether there are any encroachments on the property by neighbors, and any easements that may impact an ownership claim.
Before a title company issues title insurance, it will prepare an abstract of the title, which is a summary of what it found during the title search (basically, this is the history of the ownership of the property). Then, it will issue a title opinion letter, which is a legal document that speaks to the validity of the title.
What Does a Title Company Charge?
The cost of title insurance depends on the size of the loan and varies greatly depending on the state.
When Do You Meet With the Title Company and How Often?
You may meet with or talk to an agent from the title company on multiple occasions. First, you may decide to meet with a few agents from title companies before you buy your home to help you decide which company to go with. If the title company maintains an escrow account for you, the agent may reach out to you to provide details on that account or you may contact him with questions.
Which Title Company Should I Go With?
We have trusted title company partners that we will happily recommend during the homebuying process. You are always welcome to contact the title company at any time to get answers to your questions on title searches, title abstracts, title insurance, escrow accounts, or closings.