The Role of Title Companies
Title Insurance
A title is the legal document that shows ownership of a property. A title can be contested, an issue with the title is called a defect. Title defects include liens applied to the property or a dispute of ownership (common in cases of divorce or messy inheritances).
When selling a home, the seller will purchase a title insurance policy from a title company. The title company will perform a title search to verify all information on the title and identify and title defects. If a title defect is found it must be corrected before the sale of the property can take place. Once a title has no defects the title company will issue a title insurance policy for the property. The insurance policy is a guarantee by the title company that the title has no defects and can be transferred. If a defect was missed, then the title company is responsible for any legal damages.
Escrow and Funding
Escrow is a protected deposit account used by home buyers to store their earnest money deposit on a property. The title company maintains the escrow account.
Earnest money is a down payment made by the buyer to show the seller that their offer is serious.
The seller does not have access to the money stored in escrow until the sale is finalized.
Funding is when the buyer pays for the property—all money passes through the title company. Funding sources include the buyer’s earnest money, cash, and money acquired from a lender. Funding usually takes place a closing.
Closing
Closing is the final step in a real estate transaction. At closing the buyer and seller will complete all paperwork required for the legal transfer of the title. The title company will take care of all legal recording and reporting requirements necessary to transfer the title once all documents have been signed.
Additionally, the buyer will fund the transaction. Using the buyer’s funds, the title company will pay the sellers outstanding mortgage (if there is one), the real estate agents working on the transaction, and the seller.
