In buying a home, the road to closing is decked with a series of activities. One of these is working with a title company and securing title insurance.
What is title insurance and what does a title company do? Here’s everything you need to know about this important part of home buying.
Table of Contents
- What Is The Role Of A Title Company When Buying Property
- Why Is Title Insurance Important
- How Does A Title Company Protect You
- What Should You Expect At Settlement Closing
- When Refinancing Your Home, Why You Need A Title Company
- Why Choose Integrity Title & Escrow Company
What Is The Role Of A Title Company When Buying Property
A title company is a third party provider that performs essential services for the lender and the buyer. Their primary function is to ensure that the title to the property you’re buying is clean and free of legal issues. They then guarantee their findings of a clean title by issuing a title insurance policy.
Why Is Title Insurance Important
At closing, you and the seller sign two important documents: the deed and the title. While these terms are often used interchangeably, they’re actually two different things.
A house deed confers the ownership of the property to you. It contains a description of the property to define exactly what is being conveyed to you, and it also confirms the transfer of the property’s ownership from the seller to you.
A title is a document that says you’re the owner of the property, and with that, your rights and freedoms as the property owner, including the right to sell, landscape, and make improvements on it.
Titles may come with encumbrances. For example, if you took out a loan or a mortgage to pay for the purchase of the property, the mortgage is an encumbrance to the title. If you sell the property, you must first settle the mortgage with your lender so you can assure a clean transfer of ownership.
As a buyer, you need to make sure that you’re getting a clean title to the property, that is, one that’s free from encumbrances and other issues. You must have assurance that the seller has the right to sell the property and does not know of any other claims to it. If it turns out later on that the previous owner left unpaid mortgage or property taxes, or if someone comes along and claims their rights to the property, you can face a difficult legal battle that can cost you a lot of money or even the home itself.
A title company aims to protect you and the lender from situations like these by guaranteeing a clean title and providing title insurance, which covers any financial consequences arising from disputes or issues around the title.
How Does A Title Company Protect You
A title company performs the following:
- A title search
A title company will look for potential issues that could prevent a clean transfer of ownership, including:
- A third party’s ownership or rights to the property
- Outstanding mortgages or loans on the home
- Judgments on the property, such as liens on unpaid contractor work or a divorce settlement
- Unpaid taxes
- Unpaid Homeowners Association fees
- Existing easements and leases
- A property survey
A property survey aims to uncover any encroachment to the property that may have been done by a neighbor. The survey can also reveal potentially troublesome easements and similar issues.
- Chain of title research
This is one of the most crucial things that a title company does. They conduct research on a property’s “chain of title” or history of ownership. Title searches can go back 60 to 120 years, but this may be shorter or longer depending on the property. By identifying the home’s previous owners, a chain of title research may also reveal entities that might have a claim on the property, such as an unknown heir or a divorced spouse. It may also unearth a previous transfer of ownership that was fraudulent or in violation of certain laws.
- Title examination
The title company reviews the title to determine that all the details included in it are accurate and true.
- Abstract of title
After conducting a title search, the title company will prepare an abstract of title. This document details the company’s findings from its title search, including the chain of title, records of inheritance, judgements, and tax payments.
- Binder commitment
If liens and encumbrances are found in the title, the title company reports these in a binder commitment, along with the steps to be taken to remedy these obstacles. The title company is also responsible for taking the necessary steps to removing these title defects.
- Opinion of title
In an opinion of title, the title company states their belief that the seller has a valid title and they can issue a title insurance policy with confidence.
What Is Title Insurance?
Title insurance is a policy issued by the title company to protect the lender and the buyer from any future issues and problems that may arise from the title of the purchased property. The policy covers the lender and the homebuyer for financial losses associated with the defective title.
The country’s title system, unfortunately, is not perfect. This is particularly true for properties whose ownership goes back decades or even centuries. While the title company goes through tremendous effort to ensure that the title is clean, there is always the possibility that unforeseen problems could emerge down the road. The consequences of such issues can range from paying fines and costly court procedures to losing the property entirely.
This is why lenders require title insurance as part of the financing process. A lender’s title insurance covers the lender’s investment on your property and guarantees they get priority on claims to the property should problems arise.
A lender’s title insurance, however, only protects the lender and not the homeowner. A homeowner’s title insurance is optional, but it is highly recommended that you obtain one so you get the same protection as your lender.
What Should You Expect At Settlement Closing
A title company also facilitates the closing process. Also known as “settlement”, closing typically involves getting all parties together – including the buyer, the seller, and their respective agents – at one table and signing all documents related to the sale.
As the closing agent, the title company performs the following:
- Maintain an escrow account where cash payments, including earnest money deposits and closing costs, are kept until the day of closing
- Prepare or review all closing documents, including:
- A Closing Disclosure
- A Mortgage Note and promissory note
- Loan Estimate
- Deed of Trust
- Homeowner’s Insurance
- The escrow disclosure
- Finalize the deed and title transfer
When Refinancing Your Home, Why You Need A Title Company
Refinance is the process of taking out a new mortgage for your home to replace your existing one. There are many advantages to refinancing, such as taking advantage of a lower interest rate, getting funding for a major purchase or expense, and reducing your monthly mortgage payments.
Except in certain cases, you will not need a new title in refinancing as you’re already the owner of the home. However, your lender will require a new title insurance policy issued by a title company.
Lenders view refinancing as no different from any other mortgage. They need the protection of title insurance to ensure they don’t lose their investment should issues with the title arise.
This means that in refinancing, the title company will be conducting the same processes as when you purchased your home, including a title search, a property survey (if required), a title examination, and so on.
As the homeowner, you will receive a legal document affirming your ownership of the property. This document states that you are the home’s rightful owner and you cannot lose ownership even if claims on the title arise.
If you purchased an owner’s title insurance policy when you first acquired the house, you don’t need to buy a new policy in refinancing. If you have owner’s title insurance, you are covered for as long as you own the property. If you don’t have title insurance, refinancing is a good time to obtain one.
How To Choose The Right Title Company
Whether you’re buying or refinancing a home, the law states that you are free to choose the title company to work with.
Shop around with various providers to compare rates and services. While title insurance premiums and title companies’ service fees are regulated by the state, providers’ fees can vary.
These are some of the qualities you should look for in a title company:
- Track record
Look for a title company with proven local experience and an impressive track record. - Integrity
Choose an independent company without exclusive ties to a realtor, lender, or builder. This helps ensure you’re getting services tailored to your needs, as well as the best value for your money. - Reliability
Make sure the title company is affiliated with reputable title insurance underwriters, such as Chicago Title, Fidelity National Title Company, First American Title Company, and Commonwealth Land Title Insurance Company. - Responsiveness
Communication is very important in the closing process. Choose a title company that you can easily contact and is responsive to your needs and inquiries.
Why Choose Integrity Title & Escrow Company
Whether you’re buying or refinancing a home in Maryland, Washington, DC, or Virginia, Integrity Title & Escrow Company gives you a stress-free experience. We are one of the leading title companies in Maryland, founded by an executive team with over 80 years of combined experience. We live up to our name and guarantee integrity in every transaction, and we are committed to going the extra mile to make sure you get to the settlement table and get the keys to your home.
Call us today at 410.581.6861 or 888.838.7933 or send us an email at info(at)integritytitlellc(dotted)com
