Homeowner Basics: The Role of Title Companies

What is property title?

Even if you have purchased a home before, you may not be clear on the important role that title companies and title insurance played in your transaction because it’s one of those things that only becomes clear when something goes wrong.  A house title represents the entire ownership history of the property, including sales and liens.  This is not the same as the deed of ownership (the legal document which proves that you own the property), but it is integral to ensuring that no one else can come out of the woodwork to make a claim of ownership based on past events.

What does the title company do?

• After going under contract, the title company holds earnest money in escrow as a neutral third party until either closing or termination, when the earnest money will be disbursed to the appropriate party. 

• Ensures that the title on the home is “clear” or unencumbered - that there are no unknown or unresolved liens on the property.  This means that the seller has the right to sell the property to the buyer. 

• Ensures there are no gaps in the chain of ownership that could affect a buyer’s claim on ownership in the future.

• Inform buyers about any covenants, restrictions, easements, water or mineral rights, or any other conditions that may limit rights of ownership.

• If the property has an HOA, the title company will obtain a status letter from the association (and may obtain other HOA documents if desired).

• During the time under contract, the title company will provide a title commitment, indicating that they have reviewed title records and will provide title insurance.

• Most in-person closings will occur at the title company office.  The title representative facilitates the closing by providing settlement statements and paperwork to sign at the closing table. 

•  After closing, the title company will update the title and deed to the buyer’s name with the County Clerk - this is what is referred to as recording the deed. 

• Lastly, the title company will ensure that money from the sale is disbursed to all the appropriate parties.
  
  

What is title insurance and what does it cover?

Owner’s title insurance protects the new owner against the consequences of past defects of title.  These can include unpaid real estate taxes, unpaid liens, errors in property description or recording.  The title company that issues that policy will correct the problem, will provide legal defense, and will cover costs of any legal or recording fees. 

Who pays for title insurance?

Sellers generally pay for owner’s title insurance and fees to record the deed at the county clerk’s office.  This is a one-time cost that spans the entire length of ownership of the property.  The title company also issues a lender’s policy that covers the seller’s mortgage provider and states that the outstanding mortgage amount will be paid off at the closing table.  The buyer generally pays for the lender’s policy.

What happens if you have a claim after buying a property?

Keep your title insurance policy and the contact information for your title representative handy, and contact them with any questions or claims.  If title provided insurance before closing, this is an unlikely event.