Title companies play several key roles in common real estate transactions. Title companies generally act as the combined agent of the insurance company, the buyer, the seller, and any other parties related to a real estate transaction, such as mortgage lenders. The title company reviews title, issues insurance policies, facilitates closings, and files and records paperwork.
Title Search and Review
Title companies have sophisticated real estate title search and review departments. These departments review the public records relating to real estate, in order to inform all interested parties of the status and condition of title to the subject property. Title companies generally provide this information to each of the parties in the form of a preliminary title report, or commitment for title insurance. Title companies also provide title research information related to foreclosures and other types of legal action involving real property.
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The title review either confirms the owner of the property or identifies any "clouded" information that may call into question the true owner.
Closing Agent for Real Estate Transactions
Title companies are often the closing agents for real estate transactions. This means the title company is an agent of each party to the transaction. In its role as agent, the title company obtains signatures on all of the closing documents, and the title company also receives and distributes payments related to the conveyance transaction. After the parties have signed all the documents, the title company will record documents that need to be recorded, such as deeds and mortgages, in the local county land records office.
Acting as an Escrow Officer
Title companies also commonly act as escrow officers in connection with real estate transactions. An escrow officer holds documents or money as a part of the transaction and according to the instructions of the parties. For example, the purchaser of real estate will give the title company the money necessary to pay the purchase price, while the seller will give the title company a signed deed to the property. The title company, acting as escrow officer, only releases the deed and the money according to the written instructions of the buyer and seller.
Title Insurance Issuer
Title companies issue policies of title insurance in behalf of title insurance companies. In most cases, the title company that issues the policy is not actually the insurance company. Instead, the title company acts as an independent agent of the insurance company and simply receives a commission for issuing the title policy.
The actual premium goes to the insurance company, and the insurance company bears the risk of any loss under the policy. The title company merely facilitate the paperwork for issuing the insurance policy.
What Does a Title Company Do When a Closing Occurs?
Although the buyer's and seller's agents get most of the credit for a successful real estate sale, the title company is often the unsung hero. The company's closing, or escrow, agent works behind the scenes to prepare all parties to close the deal. The title company has a number of responsibilities that relate to closing: Its job begins shortly after the buyer and seller sign their sales contract and doesn't end until after the sale closes.
Title Search
The title company's first task is to investigate the property's history of ownership, or chain of title, and identify encumbrances on the title. An encumbrance is any claim on a property that affects the owner's right to possess, occupy or enjoy the property, such as a mortgage, a tax lien or an easement. If the title search finds liens or other encumbrances, the title company works to clear them. The title company summarizes its findings in a report called an abstract of title.
Title Insurance
The title company issues title insurance, which guarantees that the title is free of encumbrances. The buyer must purchase enough title insurance to protect the lender against any loss due to an encumbrance on the title. Although the buyer may also purchase title insurance for herself, most buyers provide only the required insurance for their lenders.
Closing Documents
Often, closing day finalizes two separate transactions: the home purchase and the buyer's mortgage loan. Each transaction has many documents associated with it, such as the deed, the mortgage and promissory note, insurance policies and disclosures. It's the title company's responsibility to prepare each document and obtain the required signatures.
Escrow Payments
Property tax and homeowner's and title insurance are among the fees buyers prepay at closing. The title company collects these fees and deposits them in a special escrow account for disbursement to the proper companies and taxing authorities.
Cash Disbursements
A lot of money changes hands during a real estate closing. The buyer pays a down payment, insurance premiums and property tax in addition to loan-related fees. The buyer's lender pays the seller the amount due after the buyer's down payment. The seller repays the balance on his own mortgage in addition to any property tax he owes and his broker's commission. His broker typically pays part of that commission to the buyer's broker. The title company and any attorneys who worked on the sale must be paid, too. The title company figures out who gets what from whom, records it on a HUD-1 statement, prepares the checks and disburses the funds.
Deed and Mortgage Recording
After the closing ends, the title company records the deed and mortgage in the county where the property is located. Recording makes the deed and mortgage part of the public record that serves as evidence of the property's ownership.
Article title: The Role of Title Companies in Refinancing
URL: https://smallbusiness.chron.com/role-title-companies-refinancing-24046.html
Website title Small Business - Chron.com
Date accessed: May 10, 2021
Date published: November 21, 2017
Date Updated: February 01, 2019
Authors: Phil M. Fowler & Daria Kelly Uhlig
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