Four important services are performed by Title companies.
Title Search and Examination
When buying a home, prospective buyers and their agents consult a title company. The title indicates ownership. The public document which most accords ownership on real property is the deed.
The title company will search the public records to find and isolate your title risk, which is the ability of other people to lay claims on part or all of the property.
For this purpose, the industry relies on the proprietary aggregation of available public records, which are tedious and difficult for most people to investigate on their own.
Public records searched: tax, court judgment, deed, encumbrance, mortgage, federal and state records
Real property characteristics: zoning, location, survey issues, improvement types, etc.
Potential risks identified: prior defective deeds, unreleased mortgages, mechanics’ liens, tax judgments, outstanding child support liens, access rights, utility and right-of-way easements, water and sewer assessments, improperly indexed documents, pending bankruptcy or divorce proceedings, boundary disputes, probate issues, forgery, fraud, undisclosed or missing heirs, etc.
If defects in the records are found during the title search and evaluation process, the title company may correct them. Generally, one out of three residential titles has at least one defect.
Settlement / Closing Services
Generally, title companies assist with closing escrows. They coordinate the review of final documents between all parties. They submit the deed for recordation after which the escrow closes.
In some cases, the title company may handle the settlement of the sale/purchase contract or what is typically called the escrow services. The company reviews the sales/purchase agreement, handles monies, pays off existing mortgages, coordinate with the lender, help prepare the Closing Disclosure, prepare the settlement statement, and many many other tasks.
The Title Insurance Policy
When the property’s title is determined to be insurable, the transactions can close and the title insurance is issued. The policy insures against risks undiscoverable from public records such as forgery, fraud, and lack of capacity in prior transactions.
Two categories of residential title insurance are available:
Owner’s Policy: Protects the homeowner from the enumerated title risks as long as the policyholder owns the property. Extended and expanded coverages can also be purchased to insure against other risks like identity theft, encroachment by neighbors, etc.
Loan Policy: Protects lenders’ mortgage liens. Extended and expanded coverage is also available.
Generally, these items are excepted from coverage:
- Taxes or assessments not shown as liens by tax records
- Any facts, rights, interests, or claims not shown in public records ascertained by facts on the ground or reported by the owner
- Claims of easements and encumbrances not shown by public records
- Discrepancies, conflicts in boundary lines, shortage in areas, encroachments, or any other facts ascertained by facts on the ground not shown by public records
- Unpatented mining claims, reservations or exceptions in patents or claims to water rights
- Any lien, or gith to a lien, for services, labor, or materials provided imposed by law not shown in public records.
Source: First American Title