February 18th 2022

If you’ve recently gone under contract to buy a home, you’ve probably been told by your real estate agent to find a title company. In that case, you may be wondering what does a title company do? And what is a “title,” anyway?

In the real estate industry, “title” refers to the legal right to ownership of a property. This title is transferred from a seller to a buyer through the deed to the property. In most cases, the person who holds the deed to the property also holds title and is considered its rightful owner.

Additionally, the new owner must be able to own the property “free and clear,” which means that any other claims to ownership must be resolved before a new transfer of ownership can take place. Some common title problems might include an ex-spouse whose name is still on the deed, or financial claims like a lien or unpaid taxes on the property.

In short, a title company is responsible for making sure that the title to a property can be transferred from the seller to the buyer without issue.

“It’s the title insurance underwriter’s job to make sure the purchaser doesn’t inherit unwanted problems such as liens, claims, or unpaid taxes,” explains Kathy J. Kwak, chief operating officer of Proper Title in Chicago.

The title company offers protection against these issues through a title insurance policy.

“This policy ensures that the seller or owner has the right to sell the land and that any problems have been cleared up,” Kwak adds.

What are the responsibilities of a title company in a real estate transaction?

Here’s a rundown of the various roles and responsibilities fulfilled by a title company in a transaction.

Conduct a title search: Once a title company receives an executed agreement of sale, it performs a title search. During this search, it looks for anything that could impede the buyer’s rightful ownership of the property. Specifically, it looks for any existing mortgages, liens, judgments, unpaid taxes, and restrictions due to easements.

Order a property survey: At the same time, the title company will likely order a property survey from a third-party provider. This survey defines the boundaries of the plot of land where the home is located. It also determines whether the home fits within those boundaries or if there are any encroachments that may affect the new buyer’s ownership claim.

Put together a title report: After the title search and property survey have been completed, the title company puts together a title report, which is also known as a “title abstract.” This report spells out the results of the title search, including any issues that need to be resolved before the title for the property can be transferred to a new owner.

Issue title insurance: Once any existing issues have been resolved, the title company issues a title insurance policy. In particular, title insurance protects the recipient from financial harm in any legal issues that result from a dispute over the ownership of the property.

Hold escrow: In addition to providing a title search and insurance, many title agents will also serve as escrow agents. In real estate, the escrow agent is a neutral third party that is in charge of holding any funds that are supposed to be exchanged between the parties in the transaction.

Typically, an escrow agent will be in charge of holding the buyer’s earnest money deposit. However, if any other funds need to be exchanged after closing, such as any negotiated funds for repairs, the escrow agent will hold those as well.

Facilitate closing: Lastly, in title states, the title agent also usually facilitates the settlement. The title agent will make sure that all the paperwork has been signed and that the funds have been properly disbursed.