Disclaimer: The information provided on this site does not, and is not intended to, constitute legal, financial, tax, or real estate advice. Please consult your expert for advice in those areas. All content is for general informational purposes only and is not intended to provide a complete description of the subject matter. Although Blueprint provides information it believes to be accurate, Blueprint makes no representations or warranties about the accuracy or completeness of the information contained on this site. Specific processes will vary based on applicable law. The title and closing process will be handled by a third-party attorney to the extent required by law. Product offerings vary by jurisdiction and are not available or solicited in any state where we are not licensed.
Purchasing property can be a complicated, lengthy, and expensive process. First-time homebuyers and novice real estate investors may not understand all the nuances of the closing process. Here are ten commonly asked questions about title companies to help you better understand what they do, how they do it, and why.
The title company is an agency that issues policies to protect buyers and lenders from issues that jeopardize their ownership rights or security interests in a property.
The “title” in title company refers to the ownership record of the property.
A title search of the relevant land records shows who owns the property, who has the right to use the property, and how that individual or entity may use the property. The public land records also show who has a security interest in the property. A common example is a lien placed on a property’s title in the form of a mortgage. The lender releases the lien in the public record when the mortgage is paid off. If no other liens or other encumbrances are on the property’s title, the owner has a “free and clear” title.
Title company and title agency are often conflated terms, but there is a nuanced difference that’s important to note. A title agency is comprised of title agents, escrow officers, closing agents, and occasionally real estate attorneys.
The title agency is an agent for a title insurance company. The insurance company agrees to give the title agent the authority to issue title insurance policies for owners and lenders to protect against liens, ownership disputes, errors in the public record, and other defects that may threaten the policyholder’s interest in the property. In return, the title agency must comply with the title insurance company’s underwriting rules.
When most people say title company, they often are referring to the title agency and the professionals working there.
After the purchase agreement is signed, title agents become involved in the transaction. They act as a neutral third party to facilitate the closings of real estate transactions between buyers, sellers, and lenders.
Before the title insurance policy can be issued, a title agent will usually do the following:
Title, closing, and escrow are often used as interchangeable terms, but there are important distinctions between them. While a title agent in one state may perform the duties of what would be considered the function of an escrow officer in another state, each of these terms conveys specific functions of these professionals.
The exact division of labor may vary slightly depending on the state you complete a transaction, but here is a quick breakdown of each.
Title specifically refers to the examination of property title to find defects before issuing an insurance policy. Title professionals map legal descriptions of properties, use databases to search property records to find documentation related to property and use rights, follow underwriting guidelines to produce title commitments, and work with attorneys to evaluate and resolve legal issues encumbering the title.
These professionals may encompass title processors, title examiners, title officers, abstractors, or title clerks. In some states, only attorneys may review title.
When you hear escrow, think money. Escrow is the holding of funds on behalf of the party to the transaction. In most cases, an escrow professional is likely to handle anything related to the financing of the real estate transaction. In addition to holding and keeping funds safe, other escrows tasks include preparing transaction documents like the closing disclosure, settlement statement, or HUD-1, ensuring the buyer and seller meet financial obligations, preparing payoff demands for existing liens, verifying wiring instruction, and reconciling financial statements.
Closing is the process of finalizing the real estate transaction. A closing agent, also known as a settlement agent, is the professional who supervises this step in the transaction. Often, a closing agent will coordinate the time and place of the closing, prepare the final closing packages for sellers and buyers, manage the signing and notarization of closing documents, and collect payments due at closing.
There are a handful of states, like North Carolina and Georgia, that require an attorney to be involved with a transaction if title insurance is required. The attorney may be required to manage all of these aspects of the real estate transaction or only certain functions.
In other states, a license is required to be a title agent, escrow officer, or closing agent. You may find a title agent who performs all three roles depending on the size of the company and state requirements.
Typically, whoever pays for the title insurance, is the party to pick the title company. There are usually two title insurance policies, the owner’s policy and the lender’s policy, issued after a transaction. In a transaction financed by the lender, a title insurance policy is required while an owner’s policy is generally optional. Either the buyer or the seller will pay for the title insurance policies.
While many states and regions have customary expectations for the buyer or seller to purchase one or both of the title insurance policies, the responsible party is ultimately determined by the terms of the real estate contract.
The closing costs for title work will often include the title search, other costs to research the property, the premium for the insurance policy, and settlement fees. If an attorney is used, there may be additional attorney fees paid at closing. While the title search and settlement fees are usually flat fees, the title insurance premium is usually calculated using the purchase price multiplied by a rate.
Purchase price x Rate per Thousand = Title Insurance Premium
Title insurance premiums fluctuate based on the sales price and the set rate used. If the party purchasing the owner’s policy is also paying for the lender’s policy, a simultaneous rate may be applied. All the associated costs of title will be listed on the Closing Disclosure.
All the associated costs of title work, including the insurance premiums, will be listed on the Closing Disclosure.
Learn more about how title insurance premiums are calculated: How Much Does Title Insurance Cost?
A lender will require a title company as a condition of financing a loan, but there are cases where a buyer and seller may circumvent the title process. For instance, cash buyers aren’t obligated to request a title search or purchase title insurance. However, skipping the professional title search and insurance could result in unexpected financial losses.
One example of how title insurance protects owners includes when a property of a decedent (deceased person) is sold before the will is read. If the seller is the assumed heir to the property, he or she may sell the property without realizing other heirs are named in the will. Those heirs with a claim to the property may come forward later to assert their right to ownership. Without title insurance, the liability of resolving the issue in court would fall squarely on the new owner. Ultimately, the new owner may have to give up ownership of the property and lose the equity they have invested in the property so far. With title insurance, the title search would likely have turned up the problem before closing on the property, giving the buyer the opportunity to walk away from the deal or request the defect be resolved before the purchase is finalized.
Title insurance helps to protect owners from financial liability due to:
To better understand what title defects are found in your property search under your policy, be sure to review the title commitment. The title commitment lists requirements and exceptions from coverage based on the property search. If an issue arises after closing, policyholders can submit a title claim for items covered under the final policy and request the insurer to resolve the matter.
On closing day, finalizing the transaction should only take anywhere from 30 minutes to a few hours depending on your role and whether or not the title company has eClosing options.
Getting to the closing day, however, can take around 30 to 60 days. Factors like financing requirements, whether the property requires extensive title research and curative work, and the terms of the purchase agreement like contingencies and inspection periods can heavily influence how long it takes to get to the closing table.
In April 2022, the average time to close a mortgage was 48 days according to ICE Mortgage Technology.
Investor-focused title companies provide the same services and end product as other title agencies, but they are more adept at handling transactions involving assignment contracts, simultaneous closings, subject-to’s, and single-source funding. An investor-focused title company has the staff, processes, and technology to support complex transactions commonly employed by real estate investors.
An investor-focused title agency aims to complete transactions quickly, efficiently, and as an impartial facilitator according to the terms of the contracts signed between parties. Once the title company receives the necessary entity documents, purchase agreement, and other contracts, submitting, tracking, and closing transactions should be seamless for investors.
Blueprint is an investor-focused title agency, providing a better title and closing experience for investors on one platform. Request a demo to learn more.
Blueprint provides a title and closing experience focused on real estate investors, lenders, proptech companies, and other professionals. While many title agencies today still lean on manual ways of processing transactions, our platform allows users to submit and track transactions easily. Our API means you can submit orders and track transaction information in your proprietary software.
Additionally, our internal title processes are developed to align with the more complex transactions executed by investors like assignment contracts, double closes, and more. Whenever possible, our team leverages convenient eClosing and mobile closing solutions, so you and your clients can skip the trip to the title company office.
Learn more about working with Blueprint and get a demo here.
2022 © Blueprint Holding Co. | 401 Church St. #1200, Nashville, TN 37219, USA | (615) 933-0075