Why Title Companies Matter
Buying or selling a home involves many steps and participants. A title company plays a supporting role in the real estate transaction by researching property records and coordinating certain administrative aspects of the transaction. Depending on the state, transaction structure, and customary practice, a title company may also facilitate aspects of the closing process or coordinate documentation, while in other transactions these functions may be handled by an escrow company or attorney.
These activities are intended to help identify potential issues related to the property’s ownership history and to support an orderly transfer of ownership as reflected in public records. Understanding the role of a title company can help set expectations during a real estate transaction.
When a Title Company Is Typically Engaged
A title company is typically engaged after the purchase agreement is executed. Interaction may occur throughout the transaction, including during document collection, information review, and at closing. The title company generally opens a title order at this stage, beginning the process of researching the property’s background. Much of the title company’s work occurs prior to closing and may not require direct involvement from the buyer or seller.
What Is a Title Company?
A Title Company in Simple Terms
A title company generally acts as a transaction participant with administrative and coordinating function in a real estate transaction. Its services commonly include conducting a title search of public records related to the property, issuing title insurance policies, coordinating escrow (in some states), and handling certain administrative aspects of the closing process. The specific services provided can differ depending on location, transaction type, and customary practice.
How They Serve Each Party
Buyers: Title company services may include reviewing available public records for matters that could affect ownership rights and issuing an owner’s title insurance policy, if purchased. In some cases, the title company may also coordinate a property survey to help document the property’s boundaries as shown by the survey, as applicable.
Sellers: The title company typically assists with processing documentation associated with transferring ownership, coordinating documents and, where applicable, coordinating or facilitating disbursement of proceeds through the closing or escrow process.
Lenders: A lender’s title insurance policy is commonly issued to reflect the lender’s mortgage interest, subject to the policy terms.
Real estate agents often coordinate with the title company, but the scope of services is transaction-specific.
What a Title Company Typically Does
Reviewing the Property’s History
A title search involves examining publicly available records, often spanning many years, to review the chain of title — the documented record of prior ownership — and recorded interests affecting the property. These records may include deeds, court filings, tax records, easements, and surveys, among others. This title examination is intended to identify items of record that may need to be addressed prior to closing. In some cases, the title company may prepare an abstract of title, which is a summary of the property’s recorded ownership history and associated documents.
Addressing Identified Items
During the review process, matters such as recorded liens, unreleased interests, encumbrances, discrepancies in records, or other items may appear. These are sometimes referred to as title defects of record. The title company generally works with the parties involved to gather documentation or information needed to proceed with closing, to address identified title issues subject to the transaction requirements.
Title Commitment
Following the title search and title examination, a title commitment is commonly issued in many transactions. A title commitment describes the conditions under which the title company may be prepared to issue a title insurance policy, subject to the policy terms, conditions and exclusions. The title commitment typically identifies requirements to be satisfied and exceptions that may apply if a policy is issued. The title commitment is generally provided to transaction participants for review prior to closing.
Preliminary Title Report
In some jurisdictions, a preliminary title report may be issued instead of, or in addition to, a title commitment. A preliminary title report is typically provided for informational purposes only and generally reflects recorded matters and interests as shown in the public record at the time the report is issued. A preliminary title report does not constitute a commitment to insure and does not describe the conditions under which a title insurance policy will be issued. Its purpose is to disclose recorded matters that may affect the property, allowing the parties to review the information in advance of closing.
Title Insurance: Coverage Based on the Public Record
Even with a review of public records, some matters may not be discoverable at the time of closing. Title insurance policies are designed to provide coverage for certain covered matters, subject to policy terms, conditions, and exclusions.
Owner’s policy: Typically purchased in connection with a sale to provide coverage to the buyer for certain covered matters related to ownership rights.
Lender’s policy: Typically issued in connection with a mortgage to reflect the lender’s interest.
Title insurance premiums are generally paid once at closing. Which party pays for which policy varies by state, local custom, and negotiation reflected in the purchase agreement.
Title Company vs. Escrow Company
Overlapping Functions
In some states, title companies also perform escrow services, holding transaction funds and documents in an escrow account until closing conditions are satisfied. In other states, escrow services may be handled by a separate entity. An escrow officer or closing agent typically coordinates these functions.
State-by-State Differences
Closing practices vary significantly by jurisdiction. Depending on location, closings may be conducted by title companies, escrow companies, or attorneys. The roles and responsibilities associated with closing are typically determined by state law, local custom, and transaction structure, and may be described by the real estate professionals or closing agents involved in the transaction.
What Happens at Closing
Handling Funds and Escrow
At closing, the escrow or title company or other closing agent, depending on jurisdiction and transaction structure, coordinates the receipt and disbursement of funds in accordance with the settlement statement and transaction instructions. Funds held in escrow — which may include earnest money deposited earlier in the transaction — are distributed to sellers, lenders, taxing authorities, and other parties as reflected in the closing documents.
Processing Closing Documents
The title company organizes and facilitates execution of closing documents, which may include the deed, settlement statement, affidavits, and disclosures. Documents are prepared for execution and subsequent recording, as applicable.
Recording the Deed
After closing, the deed is typically submitted for recording with the appropriate local recording office. Recording the deed places the transaction in the public record and is generally the final step in the closing process that formally reflects the transaction in the public record.
Closing Costs and Title Fees
Common Title-Related Charges
Title-related fees — which are part of the broader closing costs in a real estate transaction — may include charges for title searches, title examination, document preparation, escrow services, notary services, and title insurance premiums. Allocation of these costs varies by state, transaction structure, and negotiated terms.
Where Fees Appear
In certain consumer real estate transactions, title fees and escrow fees are itemized on the Closing Disclosure (CD), a standardized form provided prior to closing. The Closing Disclosure summarizes transaction costs and allocations as reflected in the closing documentation. Commercial real estate transactions typically use different settlement statements, and documentation practices may vary by transaction structure and jurisdiction.
Selecting a Title Company
When a title company is selected by a buyer or seller, considerations may include experience, availability, and customary practice in the area. Lenders may have approval criteria for title companies they work with. Selection practices and flexibility vary by transaction.
Oversight and Industry Framework
Title companies operate under state-specific frameworks that address licensing and business practices. Requirements differ by jurisdiction and may involve state insurance or financial services agencies. Federal statutes, including the Real Estate Settlement Procedures Act (RESPA), address certain aspects of the settlement process, such as disclosures and business practices. Application of these statutes depends on the facts of each transaction.
Beyond Purchase Transactions
Title companies may also be involved in refinance transactions and other non-purchase real estate transactions. In a refinance, a new lender’s title insurance policy is commonly issued to reflect the new mortgage, while an existing owner’s policy (if previously purchased) typically remains in effect, subject to its terms.
