Real estate transactions often involve many moving parts, one of the most important being the title. If the term feels unfamiliar or confusing, you’re not alone—many people don’t understand the exact role of a title company until they buy or sell a home.
While title companies may not be the most visible players in a real estate transaction, they play a critical role in ensuring the home-buying process is legal, secure, and seamless for all parties involved.
In this article, we’ll explain what title companies do and why their work is essential.
What Is a Title Company?
A title company is a neutral third party that works with homebuyers, sellers, and lenders to ensure ownership rights are transferred correctly. Often referred to as title insurance companies, they conduct title searches, resolve encumbrances, and offer insurance policies to protect buyers and lenders from potential ownership disputes or defects in the title.
What Is the Purpose of a Title Company?
If you’re buying a home, a title company ensures that the property you’re purchasing is legally yours and free of ownership disputes. Title companies perform several important services during the home-buying process, including:
- Conducting title searches to confirm ownership and identify potential issues.
- Identifying liens, encumbrances, or outstanding claims against the property.
- Managing escrow accounts and funds to safeguard financial transactions.
- Completing or arranging for property surveys, if necessary.
- Issuing title insurance policies to protect buyers and lenders.
- Overseeing the closing process to ensure all legal requirements are met.
Conducting Title Searches on a Property
Before you can purchase a property, it’s important to confirm the seller has the legal right to sell it. A title company performs a detailed “title search” to investigate the property’s ownership history and identify any potential issues. During this process, they look for:
- Liens (e.g., unpaid taxes or debts).
- Encroachments or unauthorized property use.
- Easements that grant third-party rights to use part of the property.
- Boundary disputes.
- Outstanding claims or defects in the title.
By uncovering and helping to address these issues, title companies help buyers to receive legal ownership of the property.
Issuing Title Insurance
Title companies don’t just conduct title searches—they also provide title insurance to protect buyers and lenders from unforeseen complications. There are two primary types of title insurance:
- Lender’s title insurance: Typically required by mortgage lenders, this policy protects lenders from ownership disputes or title defects.
- Owner’s title insurance: While not always mandatory, this policy protects buyers from future claims or defects that may arise after the sale.
Title insurance offers peace of mind by covering legal and financial risks related to the property’s title.
H3: Facilitating the Closing Process
In addition to researching the chains of titles, completing title searches, and issuing title insurance, title companies act as neutral third parties during closing. During closing, title companies are often responsible for:
- Coordinating with buyers, sellers, real estate agents, and lenders.
- Preparing and reviewing legal documents, including deeds and settlement statements.
- Ensuring compliance with legal requirements for transferring ownership.
- Distributing funds, such as paying off existing liens or mortgages.
By streamlining the closing process, title companies help ensure transactions are accurate, efficient, and legally binding.
Managing Escrow Accounts and Funds
Another critical function of the title company is managing escrow accounts. These temporary holding accounts securely store funds (e.g., earnest money deposits) until the transaction is finalized. Title companies release the funds only when all contractual obligations are fulfilled, adding an extra layer of protection for both buyers and sellers.
How to Choose a Title Company
Your real estate agent or lender may recommend a title company, but you’re not obligated to use their suggestion. Buyers and sellers are free to choose their own title company. To make an informed decision, consider these steps:
- Ask for recommendations from trusted sources, such as agents, lenders, or friends.
- Check online reviews and ratings for customer satisfaction.
- Verify the company’s experience, expertise, and certifications.
- Compare fees and insurance premiums.
- Confirm the company is licensed to operate in your state.
Homebuilders and Title Companies
For new construction, homebuilders often partner with a specific title company to streamline transactions. Choosing your builder’s preferred title company may offer advantages, such as:
- Simplified closing process: Familiarity with the builder’s procedures can reduce delays.
- Bundled services: Some builders offer discounts or incentives for using their preferred title company.
- Specialized expertise: Preferred title companies often have experience managing new construction transactions, ensuring efficiency.
Making an Informed Choice For Your New Home
Choosing a title company is an important decision that can influence the success of your real estate transaction. By researching, comparing options, and prioritizing professionalism and communication, you can select a title company that will guide you smoothly through the process.
Title Company FAQ
What is the main purpose of a title?
A house or home title establishes legal ownership of the property.
Why is title insurance important?
Title insurance protects against unforeseen legal or financial issues related to a property’s title.
What are the biggest title companies?
The largest title companies in the United States include First American and Fidelity National. However, many other reputable title companies complete title searches and provide title insurance for properties nationwide.
What’s the difference between a title and a deed?
A title represents the concept of ownership, while a deed is the physical legal document transferring ownership.
Can title companies remove liens?
Title companies cannot remove liens from a property's title themselves. However, they can discover them and help sellers negotiate and settle with lienholders.
