When you buy or sell a home, a title company will get involved. You won’t exactly be spending a lot of time going back and forth with them, but you should know they’re doing behind the scenes.
What does a title company do? The role of a title company is to verify that the real estate title is legitimate and ensure that the seller has the property rights to sell the home.
What is a Title on a House?
When you go to the grocery store and buy something, you get a receipt. The receipt proves you bought the goods and now own them.
When you buy a car, it’s the same thing. You get a title on the car, proving you now own it.
A house title works the same way. It is an official record that proves ownership of the home. This sounds similar to a deed, although a deed is a different document you will get at closing.
The title doesn’t just show who owns the home now. It also indicates who has owned the home in the past and liens on the property.
Now that we’ve explained that, let’s talk more in detail about what the title company does.
Title Companies Look into the Chain of Title
The first thing a title company will do is research what’s called the chain of title. This where they look into previous homeownership to verify the seller actually has a right to sell the home.
Think about what could happen if they didn’t do this. Let’s say you bought a house where someone – a disgruntled family member for example – sold a home they don’t actually own! A few months into living in the home, it turns out they didn’t have that right. This would become very complicated and messy, as you had paid money for a home that technically shouldn’t have been sold.
The title company prevents that from happening. They verify who currently owns the home. They look into existing liens on the property and they make sure property taxes are paid in full.
Essentially, they protect you from loss.
Title Companies Perform a Property Survey
Another service done by the title company is inspecting the property to verify two things:
- The home only occupies the space indicated in the official title.
- Your neighbor’s assets (such as a fence or part of the house) aren’t on your property.
The company will give you the abstract of title after they’re done. This is a record of the title history of a property, including transfers, liens, and legal actions that are connected to it.
The Importance of Title Insurance
Last but not least is title insurance. There are two kinds issued by the title company:
- The first is to you, the buyer
- The second is to your lender
The insurance protects both you and your mortgage lender legally and financially. It’s issued in case someone comes forward after everything is done with a claim of ownership that was missed when the title search was performed.
Finally, a title company will often manage the closing of a home. They will appoint an attorney or signing agent to finalize all of the closing documents.
At the end of the day, the title company exists to make sure everything is done by the books. They also protect you from loss by issuing title insurance.
Do you have any other questions about title companies, or buying a home in general? Give us a call at 949-392-6400 and we’ll be happy to help!