You’re finally settled into your dream home after a long and arduous process of searching for the perfect home. You’ve thrown a housewarming party for yourself and you’re busy admiring the delicately beautiful crown molding with your guests when a woman suddenly bursts through the door, claiming to be the great-great-great granddaughter of the woman who originally owned this house. According to her, she’s the true owner of her ancestor’s home and plans to sue you for it.
You tell her to go ahead and waste her time, that you bought this house and are the legal owner. How could she possibly lay claim to the home you purchased with your hard-earned money?
But then, a curious thing happens. As it turns out, she is the rightful heir to your home, and now your rights to the property are in jeopardy. What?
While this particular scenario may be a little far-fetched, similar things have been known to happen. Because of this, home buyers need to protect their investments from issues related to the ownership of the property they’re purchasing. That’s where title companies come in.
If you’re wondering what a title company is and what part they play in the home buying process, here’s what you need to know.
What Does a Title Company Do?
Title insurance acts as protection against loss arising from problems connected to the title of your property. A title company provides this insurance.
What does that mean? Essentially, a title refers to the documentation proving who legally owns a property. Title insurance protects you from other people’s or entities’ claims on your property. Examples of this can include liens on the property, fraud, undisclosed heirs or unpaid real estate taxes.
How does a title company do this? Let’s take a look at the process.
The title company will conduct a title search. This ensures the buyer who is purchasing the home will be the rightful owner to it once the transaction is complete. This process is meant to determine if there are any liens or claims to the property by another party.
The title company will dig up all related public records that exist for the property and look for any outstanding mortgages, judgments or unpaid taxes associated with it, as well as any restrictions, easements, leases or other issues that might impact ownership.
If required, the title company will order a survey or drawing of the property. The aim of this is to discover any potential encroachments – such as if a neighbor’s addition was built on your property – and verify that the home is within its set boundaries.
After all this research, the title company will issue a title opinion letter, which describes the state of the property’s title and whether it is cleared or has impediments that need to be dealt with.
Insurance Is Issued
Once any problems are cleared up, insurance policies are issued.
If the buyer is using mortgage financing for their purchase, a lender’s title policy is required by the lender. It protects the mortgage company’s investment in the property. Owner’s title insurance is optional, but strongly recommended. It protects the property owner against any title claims or fraud issues that may arise in the future.
How Long Does It Take to Clear a Title?
The title search process is fairly streamlined, and mainly takes place behind the scenes, meaning you won’t have to think about it too much. If everything goes smoothly, you can generally expect closing to take a little over a month to be completed, during which a lot of different entities – including your title company – will be working to get everything sorted and get you into your new home.
However, if the title company finds issues with the title, your closing could take longer. Title companies are usually pretty good at resolving title issues fairly quickly. However, certain issues may cause a holdup. For example, if the property has an undisclosed lien, it could take some time for the company to get it sorted out, delaying your closing.
Who Pays (and How Much)?
Title insurance is a one-time expense paid at closing. The average title insurance premium is around $1,000.
Who pays for it may partly depend on what’s customary in your area.
Choosing a Title Company
Your lender or real estate agent may recommend a title company for you. If you’d like to shop around and potentially save on closing costs, you have the right to do so.
According to the Consumer Finance Protection Bureau, your lender is required to give you a list of companies in your area that provide the closing services you can shop for, which includes title insurance. You may also want to ask trusted friends or family which providers they’ve used in the past, or search online.
Now that you understand the importance of title insurance, you can rest easy in your new home, knowing the rug (or the entire home) won’t suddenly be pulled out from under you.