What Do Title Companies do?
There are various activities that title companies perform to aide Realtor's, Lenders and their clients, Builders, Investors and For Sale By Owner clients in buying and selling real estate. The seller wants to make sure that they get their money from selling their home. The buyer wants to make sure they get clear ownership of the property they are buying. The Realtor wants to make sure the deal goes smoothly and the buyer and seller are satisfied with their services.
The title company acts as an impartial third party in their capacity as an escrow agent. This is to make sure the seller signs the deed and has clear title before the buyer gives them the money. The buyers funds are certified and held from the seller until the seller has completed their end of the deal. At the same time the seller is guaranteed certified funds from the buyer and the deed is not transferred and recorded until the buyer has provided those funds. This is known as the closing and helps keep buyers and sellers accountable throughout the process.
A Title agents expertise in a real estate transaction can mean the difference between a smooth transaction for all the parties or one of the following problems occurring. The seller deeds their interest to the buyer with no exam or closing and the buyer inherits the sellers title problems. Once this occurs it is up to the buyer to clear all the title issues. On the other hand the buyer gives the seller the money to purchase the property before they have the deed signed and the seller takes the money never to be heard from again. In this situation the buyer has few options, cut their losses or hire an attorney.
In the most basic terms it is the job of a title company to eliminate the risk for all the parties involved. The examination of title ensures that the title to the property they are buying is clear and that there are no surprise expenses that become the buyers responsibility. The process of holding funds in escrow from the buyer to the seller makes sure that the buyer has provided certified funds. The closing ensures that all the documents are properly executed by each respective party and everyone involved understands what they are getting at the end of the deal. Finally the insurance provided to the buyer and or lender takes care of losses covered in their respective policies and endorsements that may arise out of the process from beginning to end.
The following is a common scenario for the sale of a home as a cash deal.
Someone is getting ready to move and they need to sell their home. They contact their local Realtor to enlist their expertise in selling the property. The Realtor meets with the seller to establish the market value of the property and decide if they can help them sell. When the Realtor has found a potential buyer who is ready to make an offer a purchase agreement is drawn up by an Attorney or a standard contract is used and the buyers offer is presented by the Realtor to the seller. Great news the seller has accepted the offer and the parties are ready for the next step.
The Realtor takes the Purchase agreement that the seller and buyer have signed and the earnest money from the buyer. The Realtor is now ready to begin the process of ordering the title work to get the property closed and transferred from the seller to the buyer. The Realtor contacts the title agent and asks what is needed to begin the process of ordering the title and getting the deed to the buyer. The agent tells the Realtor that the first thing needed is the Real Estate Purchase Contract or purchase agreement and all the parties contact information. The Realtor sends the agent the purchase agreement and the agent reviews it and enters the order for processing. This can also be done by the Buyer, Seller or Lender.
Once the title agent has the purchase agreement they begin pulling all the important information needed for the examiner. The agent marks down the property address, seller info, buyer info, sale price and if it is a cash deal or if a lender is involved. The agent also notes the listing agent information and if there is a selling agent so they can give updates as the deal progresses. After an order and file has been created the examiner takes the information to perform an examination of the title.
The examiner takes the order information and goes to the county courthouse to perform the title search. They begin by running a chain of title to determine ownership for a minimum of the last 42 years (this is known as a marketable title search). After the chain of title has been run they begin running the title search for anything affecting the property through the various indexes. After the exam has been performed the examiner condenses the information into a schedule report. This hand written schedule is what is turned back into the agent to review and type into a title commitment.
At this point with the commitment typed the agent can provide a copy to the Realtor, Lender, Buyer, Seller or any other party involved authorized to receive the information and review. The agent makes note of a mortgage on the property for the seller that will have to be cleared from the property before the buyer can acquire a clear title. The agent has the seller fill out and sign a payoff request authorization form and then sends it to the bank for review. The bank will send the agent a payoff letter for the remaining balance of the loan. The agent prepares a settlement statement for the closing and sends it to the parties for review and approval. Once the settlement statement is approved the final documents for closing are prepared and the closing is scheduled.
Now the agent meets the seller and Realtor face to face to review and sign the closing package and deed. After they are done signing the docs with the seller it is the buyers turn. The closing package is reviewed and signed with the buyer and the buyer presents the agent with a certified check or wire from their bank for the closing costs and sale price (if a lender is involved this will take place after the lender has approved the closing documents). It is time to take the docs to the courthouse for recording.
The title agent takes the deed to the courthouse to be transferred and recorded. The title commitment is updated from the last exam to make sure there are no new title defects that may have attached to the property between the exam and closing before the property is transferred and recorded. If nothing new is found the title agent files the deed for record with the county recorder. At this point the closing agent is contacted and told the deed is officially put to record and they can release funds to the seller and all other parties receiving funds from the closing. The recorders stamped deed will be returned to the title agent once the county recorder has made copies for public record.
The agent has received the recorded deed and is now ready to type the final policy insuring that the buyer now owns the property free and clear of any liens or defects. The policy is typed and sent with the original deed to the buyer and the deal is complete.