Title Companies and Insurances
If you’ve ever gone house hunting, there are some buzzwords you may be familiar with. Some include home buyers, sellers, real estate agents, mortgage lenders, and property managers. One of the most essential aspects of the house buying or selling process is often overlooked.
Title companies are the entity you need to be familiar with. This article explores everything you need to know about title companies and insurance. After reading this article, you’d be able to tell what a title company is, its responsibilities, benefits to hiring one for a real estate transaction.
But first things first:
What is A House Title?
A house title is a record that reveals the ownership of a specific property or which entity has a claim or right to it. From that definition, you can already tell that this document is vital to the house buying or selling process.
A house title details who owns the property or liens (if any) and a description of the property.
What’s the Difference Between A House Title and Deed?
People often mistake house titles and deeds for the same. While they might appear similar, they are distinct in functionalities.
A house title is documentation that reveals the owner of a property or set of properties. If you buy a house, you will be on the title and sign documents related to the mortgage of the property.
On the other hand, a deed is a legal document that transfers property from one person to another. It is a document you get at closing (after you’ve purchased the property). The deed is signed and witnessed before being transferred to you as the new property owner.
So, while the house title gives you the right to use and modify a property, a deed shows who ultimately owns the property. The deed is also presented to the buyer after the purchase has been finalized.
So, where does a title company play in all of this?
What is A Title Company?
A title company is a third that brokers the real estate deal between the lender, seller, and the buyer and helps facilitate the property buying or selling process. As a real estate investor, you employ the services of a title company to research the property you intend on buying.
More so, they’re needed to insure the title of the property. A title company’s role cannot be overemphasized in real estate transactions.
Consider the following example:
Suppose Mr. B wants to buy a mansion from Miss E without hiring and seeking the professional guidance of a title company. In the months to come, Mr. B finds out that Miss E inherited the mansion from her parents and shares the property with her brother Mr. K. It’s going to be an unpleasant situation when Mr. K shows up at the mansion demanding his half of the property.
Hiring a title company saves you from unfortunate occurrences such as these.
What Are The Responsibilities of A Title Company?
A title company performs a series of actions for the buyer to ensure the real estate transaction is as seamless as possible. These responsibilities include:
Performing a Title Search
A title company performs a title search before the deal is finalized and the property is bought. A title search involves looking at public records to ascertain that the property is free from potential issues that might threaten your claim to the said property.
The title company issues an Abstract of Title after a title search. It’s a document that summarizes changes in ownership over the years, tax liens, lawsuits, property claims, utility easements, and other details.
If you’re satisfied with the findings, you can proceed with the property purchase. If the search turns up potential problems, the title company will move to resolve or advise you whether to buy the property or not.
Conduct Survey
A title company also conducts a property survey on the property to be bought. A property survey will verify the property boundaries, ensuring no encroachment. This prevents legal problems that might arise in the near future. With a property survey, you can know where to erect a fence on your real estate.
A survey also reveals the property’s building, zoning, and safety restrictions that could affect or influence your future plans. Most lenders typically require a property survey before finessing the mortgage for the property.
Keeping Money in Escrow
A title company holds the money for the property purchase in escrow before a purchase agreement. The buyer will make an initial deposit to prove their seriousness about the property purchase.
Once the sales are finalized, the buyers pay the balance, which is forwarded to the seller. If the sales don’t go through, the funds on escrow will be returned to the buyer.
Provide Closing Documents
A title company also spearheads the closing process. They are typically responsible for drawing up the closing document and determining how much should be transferred between parties.
Provide Title Insurance
Title companies also provide title insurance policies after closing. The policies are of two types: one for your certified lender and the other for you.
The property seller pays for your title insurance policy, and you, in turn, pay for your lender’s insurance policy. Title insurance policies are quite different from other insurance policies that require you to pay a premium monthly or yearly to keep your coverage.
In this case, you only have to pay the title insurance and be covered for the duration you own the real estate.
Benefits of Title Companies
From everything you’ve read, you can deduce that title companies are relevant to real estate transactions. Some of their benefits include:
- Smoothening the buying and selling process.
- Identifying unknown claims and heirs to the property.
- Discovering unpaid taxes, if any.
- Highlighting the building and zoning restrictions on a property.
- Managing the closing process, and many more.
Thus, it is essential to hire the expert services of a title company when planning a real estate purchase.
