The transfer of property from one owner to another is a complicated legal procedure. Companies that provide title and abstract services are a necessary part of any real estate deal—even in a FSBO (for sale by owner) transaction.
Nothing can spoil a real estate offer like an unexpected problem with the deed. So a property seller wants to make sure that the deed to their property has no encumbrances attached before it is listed. A reputable title company will have this service available.
No buyer wants to purchase a property unless it has a clear real estate title. Nobody wants to own a home that has the potential for future litigation over ownership. The title company guarantees that a title is clear and insures the owner against losses in the event of any error.
When third party financing is involved, title search service gives the lender confidence that they are loaning money against the property of their borrower, and not somebody else’s.
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Frequently Asked Questions
What are title companies and what do they do?
A title company is an essential participant in both commercial and residential real estate transactions. Typically, a professional title company operates as an agent for both the buyer and the seller, as well as for any mortgage lenders involved. They are licensed legal entities that provide many of the services necessary when real estate changes ownership.
The title company does a house or a land title search to make sure the deed to the property is not encumbered in any way. Once the search is complete, the property is submitted to the title insurance underwriting department of an insurer who specializes in property title guarantees. The buyer is protected from financial loss up to the amount specified in the policy, should there be a future claim.
The title company often also acts as an escrow agent, holding and releasing monies as required until the transaction is completed. As an example, any money collected from the buyer as an earnest payment is held in escrow for the seller until the closing date. However, in some states escrow services are provided by escrow companies, separately from title companies.
The title company can also manage construction loan funds for the lender during the construction phase of a new project.
The title company typically prepares all of the documents required for the real estate closing and settlement procedures.