What does a Title Company Do?

There are many reasons to avoid inviting a realtor in the sale of your home or property. Extra realtor fees usually tend to frighten potential clients away. What’s worse is if you meet an unscrupulous realtor who hikes your sale price to siphon money off potential customers and you, the seller, as well. These types of realtors scare potential clients away with their exorbitant prices, which are unacceptable by you, therefore, keeping your property on sale for a really long time, and tying up your money and time. This can even be more disastrous, if you have to take secondary decisions based on the sale of your property.

I once knew someone, who was tied down to a particular state because of these issues. His children were out of state, and he wanted to relocate to a different country. He put up his home for sale and hired a realtor. The realtor would elevate the price of the property to any interested customers. The property remained unsold for the longest time and soon became a source of frustration for the owner. Soon, he discontinued the services of the realtor, and decided to put up a sign - For Sale by Owner’. He soon got multiple people who were interested and he hired a title company to seal the deal. Today, he lives in the suburbs, off the money that he got from the sale of his original home.  

What is a Title Company?

A title company is responsible for quite a number of dealings in the closing of any real estate transaction. The title company ensures that all settlements and documents are completely satisfied. Usually, the title company acts as the closing agent in the sale of any property and helps reduce the complexity of the business deal by any of the parties involved.

The title company is especially important for FSBOs – For Sale by Owner, who are unrepresented by attorneys, real estate agents or a third party. The title company also helps protect the new owner/buyer by issuing a title insurance for their property. This protects the buyer from unforeseen lawsuits or claims against the property, and helps cover the new owner from any property- or title-related dispute.

Title companies are responsible for researching the property and ensuring that the buyer is receiving a good, marketable title. They are in charge of all documentation, preparing settlements and deeds, and filing all the necessary documents at the close of the sale, to the courthouse.

What does a Title Company Do?

When a buyer and an FSBO meet, and decide on a sale value, they either draw up a sales agreement or they invite a third party to draw this up. After the sales contract is validated, it is sent to a title company, who then reviews it and makes sure that all entries are filled in correctly. The title company then begins the title process.

There are main functions of any title company:

1. Title Research

Legitimacy of Title

The title company does a thorough search of property record to ascertain the legitimacy of the title. They make sure that the FSBO is being truthful and that the property is not actually, owned by someone else.

Outstanding Hurdles

The title company inspects public records for any outstanding mortgages, judgments or unpaid taxes associated with the property. They also search any restrictions, leases, easements and other issues that might affect the title ownership. The title company searches for any present liens on the property i.e. if a right to keep possession of the property in question, belongs to someone else because a debt is owed by the seller.

Property Survey

The title company does a property survey if a mortgage lender is involved. This includes a map of the property delineating its location and boundaries of the plot. This allows the title company to see if the property encroaches on neighbouring plots, which in turn could affect the ownership claim.

Property Taxes

The title company researches with local authorities to verify claims that property taxes have been paid. In the same vein, all utility bills are also checked. Any outstanding debts are recorded and written in the settlement document. Some homes are part of Homeowners Association, and have to pay certain dues, these payments are also verified to ensure that there are no outstanding payments against the title.

2. Title Abstract and Opinion Letter

The title company provides a summary of all that has been found in the researching of the title, this is the Title Abstract. The company also attaches a title opinion letter, this letter acts as a legal document testifying to the validity of the title. These two documents are a prerequisite before acquiring the title insurance.

3. Provide a Title Insurance

The title company is responsible for drawing up insurance. There are two types of insurance:

· Owners’ Insurance: This is purchased for the benefit of the new owner/buyer. It helps protect them against any unforeseen claims, risks, or fraud. This insurance policy also protects the buyer from financial loss and also covers the cost of any accrued legal costs that may become necessary to clear such claims.

· Lenders’ Insurance: Mortgage lenders need this type of title insurance before releasing funds to property borrowers. If you intend to mortgage as a buyer, you will definitely need to get this insurance.

4. Liaise with Mortgage Lenders

The title company arranges with the mortgage lenders to fill and sign all necessary loan documents. The title company then prepares the settlement statement which contains all the costs associated with the sale and purchase of the property.

5. Maintain Escrow Accounts

The title company also maintains escrow accounts i.e. they keep closing funds that are required for settlement and closing. This allows a third party to wade into financial matters, and help strengthen the security of a FSBO - For Sale by Owner.

6. Documentation

The title company helps the FSBO to prepare the title deed and other required documents. The company also explains all the documents and their contents to all the involved parties.

7. Real Estate Closing

The title company disburses funds from escrow accounts and is responsible for closing the real estate deal. They ensure that all documents are filled and signed appropriately. They ensure that all mortgage loans, deeds and settlements are duly filled.

8. Paperwork Filing

The title company may also take all documents: deeds, settlements and loan statements to the local courthouse and/or other required government offices for proper recording and filing. The company is also responsible for freeing the property from any existing liens. 

As an FSBO For Sale by Owner, why do I need a Title Company?

From all the functions of the title company listed above, it may seem that the buyer gets all the benefits and there is really nothing for the FSBO but this is not true.

The FSBO needs a second pair of eyes to go over all documentation and make sure that he is not short-changing himself in any way. The title company ensures that there are no errors in documentation that would otherwise nullify or delay the sale of the FSBO’s property.

The title company is not the buyer or seller but an impartial third party that can also serve as a witness to many of the dealings between the buyer and seller. This can be necessary should there be any future legal disputes.

The important thing to note is that the title company is there to help you in the complexity of the transaction when you may not have any other real estate professional. There are usually no added costs to the seller/FSBO, because it is usually the buyer that pays the title company’s fees.

As a buyer, what is the use of a Title Company?

As a buyer, multiple benefits abound;

· The title company does a title search which notifies you of any existing problems with the property. This arms you with foreknowledge and prevents you from buying a property that may end up becoming a problem. The title search exposes property debt that you, as the new owner, will inherit and have to pay off. It also exposes property encroachment and protects you from receiving lawsuits from your neighbours. When these problems arise, the title company attempts to rectify them. If it is impossible to rectify all, you can decide not to buy the property and spare yourself all the attendant trouble.

· The owners’ insurance is also a great asset to any new home owner. Let’s give an example, suppose you purchase a property, and someone else comes to you with a genuine title deed, and they are indeed the rightful owner of the property, what do you do? Without the cover of the owners’ title insurance, you are left in the lurch. But in this case, your insurance pays you the full value of your property, and if you have debts, the insurance covers that as well.

· When dealing with an FSBO, the title company acts as a neutral third party that can help verify and ensure correct documentation.

· You are freed of the complexity of any real estate transaction as well as mortgage documentation, as the title company takes on your burden.

Who pays the Title Company Fees?

For the numerous services the title company offers, they collect a fee from the buyer or the mortgage lenders. In some cases, sellers and buyer can negotiate between themselves on who pays, or what percentage of the title company’s fees each party pays. This is because the company’s services are beneficial to both parties. 

For a buyer or a FSBO – For Sale by Owner, the merits of inviting a title company are numerous. It helps safeguard the business deal, consolidate trust between parties and allows the deal to be completed smoothly and without hitches.