When it comes to selling or buying a house, everyone knows about real estate agents. Many people know about house offers and contingencies, and even more people know about the need for homeowner’s insurance. But there’s one very crucial element to real estate that remains somewhat of a hazy mystery:
What exactly is a title company?
What is a title?
Before buying a house from someone, you need to make sure that they legally own the property. A title company does just that. They run a search to ensure that, before a sale goes through, the current homeowners legally own the home.
People sometimes confuse titles with deeds:
- A deed is a legal document that transfers the property between owners.
- A title is a legal document that states who owns the property. When you become the new homeowner, the title is now in your name — sort of like registering your car.
When is a property legally owned?
A property that’s owned free and clear has no mortgages or liens associated (the house is paid off). However, you can still sell a house when you have a mortgage.
In this event, you’ll give your money to a middle man (usually the title company that holds the escrow) and they’ll pay off the seller’s mortgage. The proceeds will then roll into a new property, their bank account, etc.
Here are some instances where a property might not be legally owned:
- Unpaid taxes
- Outstanding mortgages (mortgages that weren’t previously discussed)
- Illegal boundaries or encroachments
- Ex: A house that is not entirely on the land that it’s zoned/surveyed for (such as a house that’s partially built on a neighbor’s land) would bring up issues.
- Restrictions, leases, or easements: A person can still legally own a property with any of these, but they must be disclosed to the buyers.
- Problems with the deed
- Ex: The previous sellers bought the house from someone in their family or in some other “under the table” format but there is no deed to prove they own the house.
Every homeowner needs title insurance.
The last thing you want is to buy a house with a legal issue. If that happens, the problems of the past homeowners become your problems unless you have title insurance.
Title insurance protects you in case the home you’re planning on buying is not legally owned.
Title company ≠ title agency.
A title agency represents the title company; the title company itself underwrites and distributes title insurance. When you close on a house, you’ll most likely meet with a title agency (and you can choose which agency you work with).
Can title companies get something wrong?
It’s scary to think about but it’s true nonetheless: sometimes title companies make mistakes.
In all honesty, many times what might seem like a mistake is actually a lack of comprehension or understanding on the part of the buyer or seller. This is why it’s essential to have a lawyer or real estate agent with you to go through the closing paperwork.
However, when a title company truly is at fault, they are liable. Be sure to carefully look over everything before signing and again, bring a lawyer with you.
Will title companies continue to play such a vital role in the future?
It’s more than likely, but the paperwork part might change. Instead of printing massive amounts of paper for reading over and signing, there’s a chance that title agencies will go paperless in the future. Cook County (where Chicago, IL is located) uses blockchain for closing transactions, eliminating paper.
Whether you’re a seasoned vet or complete novice in the real estate industry, RealtyHive has the resources you need. Sift through our listings to find a home near you (and get cash back with Cashifyd), sell with a time-limited event, or browse through our blogs for the latest in real estate info.