What Is A Title Company?

Buying or selling a home is, for most people, the largest financial endeavor they will ever undertake. You need to secure the professional services of a title company to efficiently and accurately handle this complex transaction.

The title company will do an "abstract of title" which means searching the real estate records in the county where that particular piece of property is located. An abstract will (1) determine the legal owner of the property; (2) reveal any mortgages, liens, judgments, or unpaid taxes that will have to be satisfied before the property is conveyed; and (3) detail any existing easement, restrictions, or leases that affect the property.

After the abstract is completed, the title company will issue a "title opinion letter", or if a title insurance policy is to be issued on the property, it will prepare a "Commitment of Title Insurance" to the lender and/or the prospective buyer. The title opinion letter and the title insurance commitment will each set forth all things that need to be completed or problems that need to be corrected before the purchaser can receive "clear title". The title insurance company will complete all the necessary documents and will undertake the steps necessary to correct any problems. Once these things are done, there parties are ready to exchange paperwork and "close" the deal.

The purpose of the closing is to sign and exchange all the documents necessary to convey title, secure the lender, and deal with collateral issues such as leases, rights-of-way, etc., and to explain in a orderly manner the costs to each party. This is done by preparing a closing statement or what is referred to in the industry as a "HUD 1". The closing statement will include the mortgage lender’s charges, documentation fees, the payoffs to release any existing mortgages, proration of city and county taxes, real estate commission fees, survey fees, and any other costs associated with the deal.

At closing, the title company will collect the purchase money funds from the buyer and lender as well as the settlement costs from each party. With these funds, the title company then pays all of the expenses of the transaction, pays off any existing mortgages, and pays the seller the net proceeds of the sale. All of this is done in accordance with the HUD 1 settlement statement.

After the closing, the title company will record the legal documents (deed, mortgage, assignments, etc.) at the county courthouse and return the original documents to the correct party. New owners receive their deed which should be stored in a bank lock box or other secure location. The lender receives the original mortgage documents which they hold until the loan is paid in full. Once the loan is paid, the lender will "release" their lien against the property at the courthouse, and will forward the original mortgage documents to the home owner. This is when the homeowner can enjoy the "burning of the mortgage" ceremony.