A title company plays an important role in your ability to secure a mortgage on a home. The title examiner has many jobs to make sure you are buying a legitimate piece of property. Once the title search is complete, the title company will issue the lender and possibly yourself, a title insurance policy.
The title company also helps facilitate your loan closing and even manages the funds that take part in the transaction. The title company is an integral part of your home purchase process and should be chosen carefully.
The Title Search
The first thing a title company will do for you as a buyer is perform a title search. The search helps you know the home’s history. The title examiner will determine the transfer of ownership since the home’s existence. They look to make sure that the home transferred legally with each transfer.
You might wonder how a transfer can occur illegally. It may happen without anyone even realizing it. This occurs most often with inherited properties. If the people that inherited the property never had the home transferred to their name legally (via the trust or will), they don’t legally own the home. Instead, the deceased person still owns it. If the people that inherited the home try to sell it, they will run into legal trouble.
Hopefully, any cases like this are found before the home changes hands. If it wasn’t, that means there could be someone out there that could stake a claim in the property. You would be unable to purchase a property like this.
The title examiner also looks for outstanding liens on the property. Typically, they’ll find mortgage deeds on the property, but that’s normal. The seller will pay the lien off with the proceeds of the sale. If the examiner finds other liens, such as unpaid taxes or mechanic’s liens, it could be a stumbling block in your purchase. You don’t want to take on a new property that comes with debts. You’ll need the seller to satisfy the liens before you can buy the home.
The Title Insurance
Once the examiner determines the chain of ownership is legal and there are no liens except the current mortgage, the mortgage company will issue title insurance.
If you secure mortgage financing on the property, you must pay for lender’s title insurance. This protects the lender’s interest in the home should someone come and try to stake a claim in the property. You may also purchase an owner’s policy. This title insurance protects you in the event that someone comes and stakes a claim on your property.
The title insurance will cover the legal expenses that you or the lender incur to fight any claims that someone has against your property before you owned it. If it turns out that someone else legally owns the home, the insurance policy will pay you and the lender the value of the home.
Once you get past the title process, it’s time to close on the home, assuming everything else with your loan went through without a hitch. The closer is an employee of the title company. They serve as the neutral third party to help you close your loan.
The closer will go through the closing documents with you one by one, explaining them to you. Of course, your loan officer and real estate attorney should also be present should you have any specific questions regarding the documents.
The closer will also notarize the documents and collect money from any parties that owe money at the closing. Once everything is signed, sealed, and delivered, the closer will distribute the funds to the appropriate parties. For example, they will pay off the seller’s mortgage and give the seller the net funds after covering any closing costs that are the seller’s responsibility. The closer will also accept the funds from you, the buyer that you must pay to close on the loan including your down payment.
The title company plans a very important role in your home buying process. Even though you usually can’t choose the title company yourself, you can ask the lender about the title company to make sure you are comfortable using them. If you don’t like the chosen title company, ask the lender about the opportunity to secure your own so that you can feel comfortable with the transaction.