What is a title company, what they do, and why it matters

What if you bought a home only to realize a stranger also has legal rights to the same home?

That's the kind of scenario title companies work to prevent.

Before you close on a home, the title company should make sure the seller has the right to sell and that no one else has an ownership stake.

What is a title company?

A real estate transaction is a lot more complex than auto or retail purchases. A property sale can involve multiple owners and multiple buyers, along with decades of previous owners on the books.

If a previous owner owed back taxes or agreed to lease part of the property to a utility company, the new buyer could be inheriting these debts and agreements.

Title companies work to remove the mystery that's built into property transfers. While a home transitions from one owner to the next, title companies research the complete ownership history of the home. If they discover problems, the new owner finds out before they hand over their money.  

That said, title companies can find ownership disputes only when existing paperwork shows evidence of the dispute. For unforeseen title problems that could surface later, title insurance exists to protect lenders and buyers.

...in as little as 3 minutes – no credit impact

What is a title?

A property title establishes the legal concept of ownership of the property, within limits set by law and local zoning rules. When you hold a title to a property, you have: 

• Right of possession and control over the property
• Right of use and enjoyment for residential or investment purposes
• Right to transfer ownership through selling, gifting, or inheritance
• Right of privacy and ability to exclude others from the property
• Right to use the property as collateral for mortgages or loans

That's a lot of work for a title to do, especially when you consider the title is not a physical document. The deed serves as the physical legal document that transfers these ownership rights between parties during a sale.

What does a title company do?

Title companies have an essential job during the closing process. They:

Conduct a title search to verify ownership

The title company investigates the chain of title: the complete ownership history of the property. This exhaustive search through public records confirms the seller actually owns the property and has the legal right to transfer it to you.

Title agents examine decades of ownership transfers and other legal filings, ensuring no competing claims exist that could jeopardize your rights as the new owner. Without this verification, you might discover, years later, that someone else has a legitimate claim to own your property.

Identify liens, easements, and encumbrances

Beyond verifying ownership, title companies uncover hidden problems that could become your responsibility after closing. They search for outstanding mortgage loan balances, unpaid property taxes, contractor liens, and easements that grant other parties specific rights to your property.

Consider this scenario: A previous owner hired contractors for a kitchen renovation but never paid the final $15,000 invoice. If this contractor filed a lien against the property, you'd become responsible for that debt, unless the title search catches it beforehand.

Title companies identify these issues so they can be resolved before you take ownership.

Manage escrow accounts and funds

In many states, title companies and title agents also manage money during the transaction by holding funds in escrow accounts. The buyer's earnest money deposit, down payment, and closing costs go into escrow.

When all contract conditions are met, the title company releases money from escrow. This neutral third-party arrangement protects both you and the seller during the transaction period.

Prepare and review closing documents

Settlement services include preparing all necessary documents, coordinating with notaries or real estate attorneys, and scheduling your closing appointment.

Title agents verify identities at closing and handle last-minute adjustments, such as loan amount changes or adding co-signers to documents.

File the deed with local authorities

After closing, the title company files your deed with county officials, making sure public records reflect the new ownership. This final step completes the legal transfer and officially establishes your property rights in the public record.

...in as little as 3 minutes – no credit impact

What is title insurance?

Title insurance protects lenders and buyers from unknown ownership or title disputes that could surface later, threatening property rights. 

How title insurance works

Not all title disputes can be uncovered before a home closes. For example, the home's seller may have agreed to let the local electric utility company use part of your new land for a bank of transformers. But if the paperwork for this easement wasn't filed correctly at the courthouse, the title search may have missed it. 

Or what if a previous owner's heir suddenly appears holding a legitimate will showing they should have inherited the home? The home sale has closed. You've already paid thousands of dollars in closing costs and made a substantial down payment. 

Title insurance could help resolve this problem by negotiating a settlement and covering your losses. 

Lender's title insurance: Required protection

Since title disputes could threaten a lender's ability to collect mortgage debt on a home, lenders require borrowers to buy a lender's title insurance policy. This policy covers the loan amount which decreases as you pay down your mortgage balance. Coverage expires when you pay off the loan or refinance.

Owner's title insurance: Optional coverage for you

Owner's title insurance protects the owner. It's optional but strongly recommended. This policy protects your full investment in the property and continues indefinitely, even through refinancing or inheritance. Sometimes sellers cover this one-time cost depending on local customs, but buyers can negotiate who pays for it.

What title insurance protects against

Both lender and owner title insurance policies shield policyholders from unexpected claims that could arise from:

• Clerical errors in public records
• Falsified documents or forged signatures
• Unknown heirs claiming ownership rights
• Property line disputes with neighbors
• Undiscovered liens from previous owners

Title insurance vs homeowners insurance

Title insurance and homeowners insurance have different jobs, but they work together to protect your investment.

• Title insurance protects against past ownership problems
• Homeowners insurance covers future property damage from events like storms, theft, or accidents.

Lenders typically require both types of coverage to approve your mortgage.

How to choose the right title company

Title companies play a brief but long-lasting role in homeownership. Working with an experienced title company can help reduce the risk of closing delays, hidden fees, or coverage issues if ownership disputes arise later.

Questions to ask before hiring a title company

Before committing to a title company, ask these key questions to evaluate their reliability:

– Experience and track record: How long have you been in business? What's your ratio of title claims to customers?

– Financial backing: Who is your underwriter? How much liability insurance do you carry?

– Security measures: How do you protect against escrow fraud? Who conducts the title search and how long does it take?

– Service quality: What's included in your fee? Do you offer same-day closing if needed?

These questions can help you find companies that prioritize quality over speed. Speed matters, but not at the cost of major headaches later.

Checking licenses, reviews, and experience

Verify that any company you consider holds proper state licensing and accreditation. Read online reviews, but focus on recent experiences rather than overall star ratings.

Ask your real estate agent for recommendations based on their recent transactions. They'll know which companies handle complex situations smoothly versus those that create closing delays.

Local vs national title companies: pros and cons

Local companies can provide personalized service and deeper knowledge of local issues like easement laws or common property line disputes. National firms typically offer more standardized processes and additional resources, though they might not know about regional quirks that could affect your transaction.

Find out whether a title company has offices nearby for convenient document signing and last-minute closing changes.

Some lenders, including Better Mortgage, can coordinate title and closing services digitally. Learn more about this service.

How much does a title company cost?

Title company fees vary by location and transaction complexity:

Basic services:

• Title search: $150 to $250
• Deed preparation: $85 to $100
• Land survey: $250 to $800

Total costs: Generally 0.5% to 1% of your home's purchase price.

For a $400,000 home, expect title company fees between $2,000 to $4,000. It's tempting to try to save a few hundred dollars by finding companies with cheaper fees, but this can cause more problems later. Regardless of price, it's best to make sure a title company has a proven track record. 

Related: Estimate your monthly payments.

Title company FAQs

Do I always need a title company?

Title companies aren't legally required for all real estate transactions, but skipping one can create more risk for buyers and lenders. Mortgage lenders will require title searches and lender's title insurance to protect their investment, making title companies necessary for financed purchases.

You could argue that cash buyers need title work just as much, if not more, than mortgage borrowers since they're putting a larger sum of their own money on the line.  

What happens if a title company makes a mistake?

Title companies can miss issues during their research. When oversights happen, title insurance provides your primary protection, covering legal costs and financial losses from missed liens, ownership disputes, or other title defects.

You may also have legal recourse against the title company itself, depending on your state's laws and the nature of the error. 

Who picks the title company?

Buyers typically select the title company, though this choice is negotiable. Your real estate agent may recommend companies they've worked with successfully, but you're free to shop around and compare options.

Sellers sometimes negotiate to choose the title company as part of the purchase agreement, especially if they're paying for owner's title insurance. Some markets have local customs about who chooses and pays for title services, so ask your agent about area practices during your transaction.

What are the main responsibilities of a title company?

A title company conducts title searches, manages escrow accounts, prepares closing documents, and files deeds with local authorities. They also offer title insurance to protect buyers and lenders from potential ownership disputes or undiscovered liens.

Protect your real estate investment with the right title company

Property transfers carry real risks. Title companies and title policies work together to lower the risk borrowers and lenders face.

After all, even the best mortgage at the best rates available today can be undermined by title disputes.

Better Mortgage works with a variety of title companies to help coordinate the closing process. 

...in as little as 3 minutes – no credit impact