Whether you are preparing to refinance your existing mortgage or purchase a new home, your mortgage lender may require you to find a title company to work with fairly early on in the loan process. If you are not familiar with the loan process, you may not be certain what a title company actually does.
The title company is one of the most important third parties you may work with throughout the entire transaction.
So what does a title company do?
A title company will provide three important services:
Research the Property’s Title History
Early in the loan process, the title company will begin researching the property’s title history and will issue a preliminary title commitment. This title commitment will show all of the property’s previous owners as well as legal documents that were signed and notarized that show the legal transfer of the property. Ultimately, the title commitment should show a clean, unencumbered line of ownership that leads to the current owner. If the title history research shows that the current owner does not own the property legitimately or that there may be a dispute, work is completed to generate a clean title history (“clear title”).
Facilitate the Closing
The title company also facilitates all aspects of the closing. This involves providing the mortgage company with the title documents they need to close, researching the current payoff figures and creating a Closing Disclosure and/or ALTA Settlement Statement. The Closing Disclosure and/or ALTA Settlement Statement shows all of the financial transactions related to the closing, such as the appraisal fee, the property inspection fee, tax service fees and more. The title company will handle all financial disbursements related to the closing, including sending wires or preparing checks for all of the vendors who will be paid for their services at closing.
Issue Title Insurance
A final service offered by the title company is the preparation of a title insurance policy for the lender and/or the Buyer. The title insurance protects the lender and/or buyer from financial liability in the event there is a dispute over the ownership of the land later on. This type of dispute can create costly legal fees and ultimately can strip the property’s ownership from the owner. Title insurance will pay for these legal expenses and for the loss if one occurs.
As you can see, a title insurance company is a critical player in the real estate transaction, providing important services to all parties. When you are selecting a title insurance company to work with, you may want to consider getting recommendations from friends and family, as well as your real estate agent, for a title company/escrow officer to work with. You may also search online to compare reviews of local title insurance companies on popular business review sites like Google My Business.