If you’re closing on a house, you can be sure of one thing: Your title insurance company is hard at work.
The complex roles a title insurance company tackles throughout the closing and settlement process can make your life simpler when it matters: the many happy years you live in your home.
“Title” is a legal term for the legal rights to a property. It’s possible for just one person to own the title, or for different parties to all have certain rights or financial interest in the same house (if you have a mortgage, the lender has a financial claim until you’ve paid your loan).
The title company’s first responsibility is to make sure the title to your home is clear, or available to sell. Just like gray skies can hold up beach day plans, “clouds” on a title are warning signs that can delay the sale.
Debts like unpaid property taxes or outstanding liens (a type of security hold) can cloud a title. Resolving these items can be as simple as correcting a clerical error or following up on a lien to confirm that any debts are paid. On the other hand, unsatisfied bankruptcy claims or legal judgments can be more complicated to fix.
A home sale can’t go through if the seller doesn’t have full rights to sell the property. That’s where a title search comes in. The title company researches public records to assess who has a legal claim on the property. They’ll look at records such as:
That should help them determine if there are ownership issues.
Title companies work hard to do a thorough search and uncover any possible ownership problems. There’s always a possibility, however small, that something could be missed in the initial search. Title insurance is one solution to help protect against unknown title defects that could come to light in the future.
There are two types of title insurance: lender’s (also known as a loan policy) and owner’s. Lender’s insurance only protects the lender’s financial interests in the property, and usually covers the loan amount. The owner’s policy generally covers the full amount you paid for the home, and stays in effect even if you refinance and switch lenders later on. The average cost of the two policies bundled is around $1,374, and most people choose to buy both for added peace of mind.
In much of the United States, the title company can handle real estate closings, such as supplying paperwork and conducting closing procedures.
They may also manage the escrow account for your home sale, which holds funds for closing costs, earnest money deposits, and eventually the down payment and money to purchase your home. If your title company representative is acting as an escrow officer, they’re responsible for keeping escrow funds and documents like your deed safe.
Here at Spruce, we built our own solution to make the closing process less stressful and more secure. Our proprietary digital closing dashboard allows you to schedule a closing appointment on your terms, view and sign documents prior to the final meeting, and pay or receive funds via our secure portal.
If an undisclosed heir shows up on your doorstep, or you find out about something less dramatic, like a recording error, your title insurance policy will kick in.
The title company provides legal representation to investigate unexpected claims and settle the issue. In some cases, the title insurance company may pay to remove the title defect, like paying off a lien. They might also handle legal issues like easements (legal right to access or use the property) on your behalf. In other cases, the title company might compensate you for a loss in value due to a title issue with your property.
Title companies do a lot of jobs, from researching documents to handling financial and legal duties, to make it easier for you to own your home on your terms.
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